martinsa fadesa annual report 2006

Index

LETTER FROM THE PRESIDENT l 7

ECONOMIC SUMMARY l 11Introduction

Key Data Business

Development Analysis

Stock-market Development

LINES OF ACTIVITY l 31Real-estate Activity

Property Development in 2006

Asset Management Activity

Significant Events

CORPORATE SOCIAL RESPONSIBILITY l 65

ASSET VALUATION l 71

FINANCIAL INFORMATION l 79FADESA INMOBILIARIA, S.A.

FINANCIAL INFORMATION l121FADESA INMOBILIARIA, S.A. and Subsidiaries

Index

L E T T E R F R O M T H E C H A I R M A N

LET TER FROM THE CHAIRMAN • Annual Report 20068

2006 was a year of great activity in theproperty sector in Spain and also in other international markets. In this con-text of growth and expansion,FADESA has consolidated its position as a re-ference in the Spanish market with a marked increase in its performance inthe residential segment, which constitutes 94.6% of the company’s revenue,and has continued its progress on the international front, extending its pro-jects in both number and size as well as moving into new countries.

FADESA has proved its ability to openup new markets, diversifying its activity in terms of geographical locationand new products without neglecting its traditional business, all of whichhas led to growth in the company’s principal ratios.

Throughout this last financial yearFADESA has significantly reinforced its presence in various Central andEastern European countries, on the Mediterranean coast and in North andCentral America. Our brand is now present in 13 markets outside Spainand is proving to be a key player in the field of property development inthese countries. As the sector in Spain faces a downturn in growth rates,with a certain deceleration of demand, the opportunity of being able tocount on projects in countries immersed in a period of rapid expansion re-presents a guarantee for the future.

Our commitment to this externalmarket is clearly reflected in the number of units sold in 2006, accountingfor 44% of total sales and set to increase to over 50% in 2007.

A further highlight of 2006 was thestrong progress made in the company’s asset business, particularly in the

Letter from the Chairman

LET TER FROM THE CHAIRMAN • Annual Report 2006 9

FERNANDO MARTÍN ÁLVAREZCHAIRMAN

hotel and shopping centre sectors. By entering into partnership with com-panies specialising in the management of this kind of asset, FADESA hasembarked upon a new route to growing its business which will steadilyconsolidate itself in the years to come.

In late 2006 FADESA was faced with afriendly takeover bid that finally became reality in early 2007 and is direc-ted towards an eventual merger with MARTINSA. The purpose of this mer-ger is to create an entrepreneurial group that will be a leader in Spain andin Europe, with a business model based on the promotion of property de-velopments, boosting the process of internationalisation and diversifyingits business activities. Within this latter process of diversification, FADESAis currently considering its entry in the renewable energy sector, one thathas clear synergies with the Group’s core business. At the same time, em-phasis is being placed on reinforcing the criteria of quality, transparencyand sustainability, essential features of a company that behaves respon-sibly towards its shareholders and customers.

The work of FADESA’s managementteam is to improve the company’s results and to create value for its share-holders. In order to accomplish these goals, FADESA will need to count onthe best possible team of talented individuals, employees who are prepa-red to give of their best. The growth of the company must take place in anenvironment of strict financial discipline that will enable us to meet ourcommitments, and must be compatible with the conservation of the envi-ronment and the efficient use of energy resources.The strategy of diversifi-cation and internationalisation put in place by FADESA will bear its fruitsin future years in the form of continuous sustainable growth that will pro-ve able to withstand changes in market cycles.

E C O N O M I C S U M M A R Y

ECONOMIC SUMMARY • Annual Report 200612

In 2006 the company’s principalactivity continued to be its pro-perty business, accounting for94.6% of turnover, although itshotel division, with 16 establis-hments open, continued to ma-ke progress with turnover up46% at year end at 50.42 millioneuros, compared with the 34.5million euros generated in 2005.

Performance was strong in theresidential area, with advance sa-les rising by 39% to 10,055 ho-mes from the 7,228 sold in 2005,equivalent in monetary terms to1,472 million euros. This has ena-bled FADESA to set a new histori-cal record in its stock of pre-solddwellings, which now stands at14,822, representing 2,333 mi-llion euros, providing guaranteedresults for the years to come. 44%

Introduction

FADESA ended the 2006 financial year with a

total turnover of 1,281.1 million euros, 31% up on

the figure for 2005, the overall gross margin

remaining above 40%. Comparable net profit

(before expenditure associated with the takeover

bid) was 230.4 million euros as against the

previous year’s 181.2 million euros, this

representing a 27% increase over the 2005 figure,

demonstrating for yet another year the

company’s ability to deliver a high rate of growth

ECONOMIC SUMMARY • Annual Report 2006 13

of all pre-sold units in 2006 werein developments outside Spain, aremarkable achievement whenone considers that only two yearspreviously this proportion was amere 15%. The number of pre-sold homes in countries otherthan Spain grew by 107% in com-parison with the previous year. Interms of the number of units sold,the two largest foreign develop-ments have been Residencial Me-diterrania Saïdia (Morocco) andOstoja Wilanow (Poland). Stronggrowth was also achieved in thenumber of subsidised dwellings,which at year end totalled 4,157,an increase of 149% in relation tothe 2005 figure.

With regard to completed dwe-llings and other residential units,revenue deriving from this area

rose by 44% to reach 899 millioneuros. 6,913 units were delivered,51% of which were first homes,17% second homes, 21% subsidi-sed dwellings and 11% plots.

FADESA’s robust performance ledto an increase in margins genera-ted in all areas of the company’sactivity, with the overall grossmargin growing 33% to reach516.9 million euros, as comparedwith 388.3 in 2005. The EBITDAshowed similar positive growth,up 28% on the previous year at360.4 million euros. Total assetsamounted to 4,387.8 million eu-ros, an increase of 30%, whilst netequity also stood 30% higher thanin 2005 at 685.2 million euros.

Expenditure associated withthe TOB, which includes fees

paid to external advisers and aone-off payment to employees,totalled 70.4 million euros.


Principal financial and business indicators


The FADESA Group’s total turnover once again grew significantlyduring the 2006 financial year, giving an annual growth rate ofover 40% for the last five years.

Mean net profit grew at a rate of 61% per year during the period2001 – 2006.

Summary Group Profit and Loss Account

Turnover

(000,000 euros) 2006 2005 Var. % 06/05

Total Turnover 1,281.1 977.4 31%Real Estate Revenue 1,211.4 925.4 31%Total Gross Margin 516.9 388.3 33%EBITDA 360.4 282.6 28%EBIT 344.1 263.9 30%Profit before taxation 345.9 262.7 32%Net profit attributable to shareholders 230.4 181.2 27%

Figures for 2001, 2002 and 2003 are based on General Spanish Accounting Standards

Net Profit(000,000 euros) (000,000 euros)


Balance Sheet

The increasing strength of thebalance sheet is a reflection ofthe growth registered in thecompany’s main business areaduring the financial year. For thisreason land in its various stagesof development, which constitu-tes our raw material and therefo-re included under the heading ofstocks, not only continues to re-present a large part (69%) of to-tal assets, but has also risen sig-nificantly (+39%) in comparisonto the previous year.

Financial liabilities, as a propor-tion of total liabilities (45.5%),are also slightly up on last year(42%) as a consequence of ourprocess of expansion, given theneed to finance a growing num-ber of development projects si-multaneously.

Profit ratios have thus fallenslightly over the past financial ye-ar due to this emphasis on inves-tment, an effort that will reap itsrewards in the form of a signifi-cant increase in the number ofunits delivered, revenue and pro-fits in the years to come.

Summary Group Balance Sheet

000,000 euros Dec 2006 Dec 2005 %

Tangible fixed assets 400.3 442.3 -9.5%Stocks 3,027.1 2,180.4 38.8%Liquid assets 46.3 73.1 -36.7%Other assets 914.1 672.1 36.0%

Total assets 4,387.8 3,367.9 30.3%Net equity 685.2 526.1 30.3%Financial liabilities 1,996.4 1,408.8 41.7%Creditors 1,422.2 1,297.0 9.6%Other liabilities 284.0 136.0 108.8%

Total liabilities 4,387.8 3,367.9 30.3%

Net financial liabilities 1,950.1 1,335.8 46.0%

Net profit 230.4 181.2 27.2%

Number of shares 113.31 112.22 1.0%Profit per share 2.03 1.61 25.9%Net net asset value per share 44.60 38.23 16.7%

Return on equity 38% 41% -7.2%Return on capital employed 16% 19% -15.7%

Gross asset value 10,537 8,813 19.6%Net asset value 7,171 6,330 13.3%Net net asset value 5,054 4,290 17.8%Net liabilities / Gross asset value 18.5% 15.2% 22.1%


Operating Figures

Operating Figures 2006 2005 2004 2003 2002 2001

Land portfolio* 23.7 20.1 16.5 11.8 9.1 5.9

Advance sales

Units 10,055 7,228 5,918 7,110 3,232 2,688000,000 euros 1,472.0 1,394.2 959.0 1,005.0 481.9 355.4

Deliveries

Units 6,913 5,973 3,931 4.252 3,235 2,026000,000 euros 1,192 924.5 661.3 594.8 417.0 213.4

Advance sales stock 2,332.9 2,052.6 1,535.6 1,211.2 750,9 685.9

Highlights of business perfor-mance in terms of units delivered,advance sales and final stock in-clude the following:

The number of units deliveredduring the year was 16% up onthe figure for the previous twel-ve-month period. However, if

we look at income growth fromresidential units delivered alo-ne, the year-on-year increasewas 44%. In part this extremelypositive performance is due tothe process of international ex-pansion upon which the com-pany embarked some yearsago, the results of which can

now be seen in various indica-tors, such as the fact that in2006 87% of total turnover (in-cluding land sales) correspon-ded to developments in Spain,as compared to 98% only twoyears previously. Morocco, theforeign country in which thecompany has the greatest pre-sence, now accounts for 10% ofunits delivered, and revenuefrom units delivered outsideSpain increased by 132% duringthe past financial year.

With regard to advance sales,the prime indicator of the com-mercial strength of a propertycompany, it should be pointedout that the number of advancesales in the non-subsidised firsthome market increased was60% up on the previous year,whilst that of subsidised first ho-mes grew by 149%. Furthermo-re, in connection with the pro-cess of international expansionmentioned above it is relevantto note that 32% of total volumecorresponded to developmentsabroad and 44% of units sold li-kewise belonged to projects un-der way outside Spain, when 2years previously this figure scar-cely reached 15%.

In the case of the stock of defe-rred advance sales, once againthis indicator reached a recordhigh at 2,333 million euros, 16%up on the December 2005 figure.In this area, 39% corresponds tosales outside Spain.

* potentially buildable m2


Business Performance

2006 was, from the point of viewof business activity in the pro-perty sector, one in which reve-nue generated by dwellings andother residential units grew by44 %, the gross operating marginin this area increasing by 42%.

With regard to the first of thesepoints, we can attribute this po-sitive performance to our policyof expansion both at home andabroad, upon which we embar-ked several years ago with theintention of opening up newmarkets. This is a fundamentalpriority in a sector such as realestate which has land as its rawmaterial. The fruits of this pro-cess can be observed in the per-

centage of units delivered indevelopments outside Spain,which at the close of 2006 ac-counted for 13% of the totalnumber when only two yearsago it was less than 8% (itshould also be noted that thenumber of units delivered hasrisen by 74% over the same pe-riod), or in the fact that units ha-ve been delivered in over 30 dif-ferent developments. Thisprocess of diversification (or putanother way, of reducing depen-dence on a single business cen-tre) is expected to intensify inthe future, since the trend iseven more visible in the numberof units sold in advance. Consoli-dation of our expansion abroad

is therefore a key factor in gene-rating revenue and profits forthe company not only at pre-sent, but also, we expect, in thenear future. In this regard, themost significant steps forwardduring the past twelve monthshave been our entry into threenew countries: Mexico, Rumaniaand Bulgaria; the acquisition ofland in other cities in Poland inaddition to Warsaw; the agree-ments reached with the localdistrict council of Csepel, in Bu-dapest (Hungary); or the embar-king on our first major projectsin France.

In the case of the second as-pect, it should be noted that

Balance Sheet


As can be seen from the above ta-ble, in the financial year just en-ded the total income obtained bythe FADESA Group reached1,281.1 million euros, 31% up onthe figure for the previous year.

The company’s principal businessactivity, real estate, accounted for94.6% of this total amount, a year-on-year improvement of 31%,with the gross margin rising to42%. The most important item inthis business line is the sale ofdwellings and other residentialunits, which represents 74% ofthe total and was 44% up on theprevious year, reaching the hig-hest ever gross margin posted bythe company at the close of the

financial year. Another item to no-te is the growth in income fromthe sale of land, which rose signi-ficantly to over 211 million euros,27% up on the previous year.

The overall gross margin of thecompany’s real estate activity re-flects an extremely positive trendin both real and relative terms, in-creasing by 34% to reach almost504 million euros in the case ofthe former, and representing 42%of total income generated by thisactivity in the case of the latter,one percentage point higherthan in 2005 in spite of the incre-ased proportion of turnover co-rresponding to the delivery ofdwellings, traditionally the pro-

the gross operating margin ob-tained when only the deliveryof dwellings is taken into consi-deration was the highest everrecorded by the company, orthat results from the sale ofland have been clearly positive,

partly thanks to operations out-side Spain, in this case in Mo-rocco.

We now present the comparati-ve Profit and Loss Accounts forthe last two financial years:

(000,000 euros) 2006 2005 Var. % 06/05

Real Estate Activity

Turnover 1,211.4 925.4 31%Cost of sales -707.7 -548.1 29%Gross margin 503.7 377.3 34%

margin % 42% 41%Hotel Activity

Turnover 50.4 34.5 46%Cost of sales -41.2 -29.1 42%Gross margin 9.2 5.4 71%

margin % 18% 16%Industrial Activity

Turnover 17.4 17.2 1%Cost of sales -15.3 -11.9 28%Gross margin 2.1 5.3 -60%

margin % 12% 31%

Other operating income 1.9 0.3 441%Total income 1,281.1 977.4 31%Overall gross margin 516.9 388.3 33%

overall gross margin % 40% 40%Other operating expenses -156.5 -105.7 48%

EBITDA 360.4 282.6 28%EBITDA margin% 28% 30%

Provision for fixed asset depreciation -17.9 -17.9 0%Variation in trading provisions 1.6 -0.8 -304%

EBIT 344.1 263.9 %Financial loss -8.6 -2.6 230%Financial income 3.1 8.4 -63%Financial costs -68.0 -44.4 53%Capitalized interest costs 42.7 26.6 61%Net translation differences 11.5 5.8 98%Interest from companies consolidated in equity 2.2 1.0 112%Profit from variation in asset values 10.4 1.4 654%Operating profit before taxation 345.9 262.7 32%Exceptional items 0.1 0.0Profits before taxation 345.9 262.7 32%Tax on profits -115.2 -81.5 41%Profit attributable to external partners -0.3 0.0 -836%

Profit attributable to shareholders 230.4 181.2 27%


duct with the lowest gross marginamongst those included in thecompany’s principal activity.

The second business line interms of importance, that of ho-tels, generated over 50 millioneuros, 46% up on the previousyear. Margins in this sector of thecompany’s business grew by 2percentage points in spite of theconsiderable investment outlay,since many of our hotels are onlyin the initial phase of operation,the least profitable of all.

Finally, the company’s industrialactivities are immersed in a res-tructuring process that has givenrise to a sharp increase in costsand a subsequent drop in thegross margin obtained.

All in all, therefore, the OverallGross Margin increased by 31%, re-presenting 40% of total turnover.

With regard to expenditure, otheroperating expenses rose signifi-cantly as a result of the general in-crease in the company’s activitiesand the finance needed to under-write the on-going process of in-ternational expansion. Neverthe-less, this item only increased by16% of the growth recorded fortotal income.

EBITDA for the financial yearamounted to 360 million euros,28% up on the figure for 2005. Inrelative terms the EBITDA marginfell back by one percentage point

in comparison with the previousyear, remaining at the same levelas at the close of 2004 in spite ofthe investment outlay of the pasttwo years.

Annual financial expenditure in-creased as a result of the increasein the amount of debt, of whichcorporate debt (the rest is linkedto the company’s real estate busi-

ness) accounted for a mere 14%,and of the increased cost of finan-ce deriving from the general risein interest rates. The mean cost ofservicing loans was 3.51%.

Finally, the net profit recorded bythe FADESA Group grew 27% incomparison with the previous ye-ar, standing at over 230 millioneuros at the close of 2006.


Balance SheetAs at year end 2006 the balancestood in excess of 4,387 millioneuros, reflecting strong growthover the year of 30%.

On the asset side one of thehighlights was the close to 847million euro rise in the value ofstocks. This is mainly attributa-ble to the land currently goingthrough the process of obtai-ning planning permission anddevelopments in progress,which grew by 49% and 33%,respectively. A second itemworthy of note is that of deb-tors, where the rise is the resultof a steady increase in commer-cial activity.

On the liability side, the Group’sNet Equity grew by 30% overthe year, thus consolidatingeven further the strong finan-cial position already enjoyed bythe company. Clear proof of thisis that at year end the net debtto GAV (asset market value) ra-tio stood at 18.5% (considerablylower than the sector average).

As a result, and in spite of thehigh level of investment, mostlyfinanced by bank loans, thecompany continues to enjoy acomfortable position. Mentionshould be made in this regardof the fact that only 14% of thisdebt is corporate, the rest beingassociated with housing acti-vity, and that its year-on-yeargrowth rate was a modest 10%.

Finally, in terms of profitabilityFADESA continues to outper-form average values for the sec-tor, with ROE standing at 38%and RoCE at 16%.

Assets (000.000 euros) 2006 2005 Variation

Tangible fixed assets 400.3 442.3 -10%Real estate investments 64.7 26.2 147%Goodwill 9.2 10.5 -12%Intangible assets 3.3 2.7 21%Non-current financial assets 19.3 5.4 259%Equity investments 76.8 96.5 -20%Deferred taxation 35.9 42.8 -16%Non-current assets 609.5 626.3 -3%Stocks 3,027.1 2.180.4 39%Trade debtors 575.9 448.5 28%Other current financial assets 17.7 8.4 111%Other current assets 98.1 31.2 214%Cash and other liquid assets 46.3 73.1 -37%Non-current assets held for sale 13.2 0.0Current assets 3,778.3 2,741.6 38%Total Assets 4,387.8 3,367.9 30%

Liabilities (000,000 euros) 2006 2005 Variation

Net equity 685.2 526.1 30%Deferred income 3.4 2.2 54%Non-current liabilities 255.2 205.4 24%Liabilities with financial institutions 173.2 154.5 12%Liabilities for tax on current income 35.9 31.0 16%Provisions 24.5 19.4 26%Other non-current liabilities 21.6 0.5 4317%Current liabilities 3,444.0 2,634.2 31%Liabilities with financial institutions 1,823.2 1,254.3 45%Trade creditors 1,422.2 1,297.0 10%Provisions 42.1 31.9 32%Liabilities from deferred taxation 60.0 42.2 42%Other current liabilities 96.5 8.9 987%

Stocks 2006 2005

Land and building plots 1,536.0 1,031.3Promotions ongoing 1,252.8 939.1Constructed buildings 220.7 188.2Hotel stocks 0.9 0.7Industrial stocks 16.7 21.0Total 3,027.1 2,180.4


As has been the case in previousyears, the majority of this inves-tment is deferred and is depen-dant on meeting certain urbanplanning targets. This is reflectedin accounting terms by an increa-se in Trade creditors (which alsoincludes other concepts).

Of the 5.1 million square metresof land mentioned, 75% corres-pond to land that is in the initialstages of the urban planning pro-cess, in keeping with the com-pany’s business model, the aimbeing to retain most of the valuecreated during this process. Oneof the points of note in this con-text is the proportion of undeve-loped land acquired outsideSpain, where the company is alre-ady introducing the business mo-del that has been at the core of itssuccess at home. Nevertheless, fo-llowing the trend of previous ye-ars, 0.4 million square metres ofdevelopment land have also be-en purchased in Spain, mostly inthe provinces of Valencia, Sevillaand Guadalajara.

In terms of geographical distribu-tion, major investments have be-en made in Rumania, where landwith a potential for building ap-proximately one million squaremetres of built surface area hasbeen acquired, or Poland, whereland has been purchased in citiesother than Warsaw that show gre-

at potential for growth. In this re-gard it should be noted that 33%of the land portfolio is now heldoutside Spain, compared with23% a year previously.

At 31 December 2006 a total of16 hotel establishments wereoperational, 15 located throug-hout Spain and one in the cityof Casablanca (Morocco). TheFADESA Group has a further tenprojects under construction indifferent parts of Spain and Mo-rocco, and others still at theplanning stage in Spain, Moroc-co, Mexico and France. In all ca-ses the offer includes both citycentre hotels and holiday hotelsin strategic locations for holi-daymakers wishing to enjoy thebeach, water sports, golf ormountain activities.

With regard to golf courses,built primarily to provide addedvalue for homes already soldand the group’s hotels, 2006saw the opening of a furthercourse, bringing the total num-ber in operation to 5, with a fur-ther 18 either under construc-tion or at the project stage.

Portfolio of land under management

Asset investment


Rise in advance sale stock 000.000 euros Units 000.000 euros Units

Advance sale portfolio at start of year 1,508.9 10,307 2,052.6 11,680+ Additions following the acquisition of FRG 35.4 118+ Advance sales for the year 1,394.2 7,228 1,472.0 10,055- Deliveries for the year 924.5 5,973 1,191.7 6,913IFRS adjustments 38.6 0Advance sale portfolio at year end 2,052.6 11,680 2,332.9 14,822

Operating figures2005 2006

FRG = Financière Rive Gauche

The most significant indicator ofthe company’s progress, advan-ce sales made during the courseof the year, rose by 39% in termsof the number of units sold. Ta-king only housing units, the ye-ar-on-year increase was 55%over the 2005 figure, a signifi-cant percentage indeed, and un-doubtedly proof of the excellentpositioning of FADESA’s pro-duct, particularly if we bear inmind that the number of non-subsidised first homes grew by60% over the financial year. The-se brilliant results can be attri-buted to a variety of factors, butthere can be no doubt that oneof the most important reasons isthe ongoing process of interna-tional expansion undertaken bythe company in recent years. Inthis regard it should be notedthat the number of dwellingssold outside Spain increased by107% in comparison with theprevious year.

Furthermore, with regard to thegrowth of turnover in the pastfinancial year, if we exclude thesale of two office blocks in Hos-

pitalet in 2005, advance sale re-venue would be 15% up on theprevious year.

In terms of the number of finis-hed houses delivered to theirowners, revenue from residen-tial properties alone was 44%higher than in 2005. A goodexample of the importance ofthe company’s international ex-pansion is the increase in reve-nue from units sold outsideSpain, which was 132% up onthe same figure for 2005.

As a result, the stock of unitssold in advance reached a newhistorical high of 14,822 dwe-llings, 27% more than in De-cember 2005. These units, forwhich private contracts of salehave been signed, represent re-venue in excess of 2,333 millioneuros, deferred pending theircompletion.

An analysis of the advance salestock provides clear evidence ofthe process of diversificationwhich FADESA is currently un-dergoing, both with regard to

types of product and geogra-phical location.

In the first of these cases, itshould be noted that 30% of theunits in stock correspond to se-cond homes, a noticeably lowerpercentage than in 2005 (34%),but still well within the targetsfor the company’s product dis-tribution policy.

Secondly, there is also clear evi-dence of the ongoing process ofgeographical diversification un-dertaken by the company, with39% of the stock of units sold inadvance as of December 2006corresponding to dwellings indevelopments being built outsi-de Spain, with Morocco to thefore, representing 28% of the to-tal figure.


Land Portfolio Distribution

Land use

At 31 December 2006 FADESA’sland portfolio was 18% greaterthan at the end of the previousyear (23.7 million buildable squa-re metres as opposed to 20.1 mi-llion sq. m. In 2005).

This land portfolio is characteri-sed by its high degree of diversi-fication in several respects:

Land portfolio

2005 5.7 2.6 6.3 5.5 20.1

Acquisitions 0.4 1.0 4.2 5.6

Transfers/In 2.0 1.6 1.5 5.1

Transfers/Out -2.0 -2.0 -1.6 -1.5 -7.1

2006 5.7 2.6 7.2 8.2 23.7

Total

L a n d b a n kOngoingdevelopments Ready Urbanisable Pre-urbanisable

ITS POSITION WITHIN THE URBAN

PLANNING PROCESS

The balance achieved depends toa great extent on the applicationsfor planning permission madeduring the year (5.1 million squa-re metres during 2006) and theacquisition of new land, whichusually takes place at the begin-ning of the urban planning pro-

cess. Throughout the year 2.0 mi-llion buildable square metres we-re consumed through delivery ofcompleted dwellings and buil-ding plots, as well as through thedirect sale of land to other pro-perty developers.

* potentially buildable m2


Breakdown by type of dwellingGeographical distribution of the portfolio of buildable land

ITS DISPERSION

Of the 23.7 potentially builda-ble square metres in the portfo-lio, 33% is located outsideSpain, mainly in Morocco, wherethe company has had a presen-ce since the year 2000; in Hun-gary, where the first land wasbought in 2004; and in Ruma-nia, a country in which FADESAhas recently established itself.

Within Spain itself, the companyowns land in almost all of the 17autonomous regions.

PRODUCT DIVERSITY

The portfolio of land for residen-tial use is divided as follows: 62%for unsubsidised first homes,10% for subsidised housing and28% for second homes.


Share report

FADESA’s shares closed 2006 at35.15 euros per share, thereby in-creasing their value over the yearby 26%.This increase in value goesas high as 183% if we compare theyear end price to that established

at flotation (12.40 euros) in April2004.The following table summari-ses this information and establis-hes a comparison with the perfor-mance of the Spanish StockExchange during the same period:

Days Starting price Closing price Increase in value

FADESA 679 12.4 35.15 183%IBEX 35 679 8,109.50 14,146.50 74%

The performance of FADESA’sshares has therefore been positi-ve not only in absolute terms, butalso relative to that of the IBEX 35stock market index.

FADESA share peformance


Share dealing

This performance has increasedthe company’s market capitalisa-tion from an initial 1,381 millioneuros at flotation to 3,982 millioneuros in December 2006.

Market capitalisation2006 Share price (000,000 euros) Date

IPO 12.40 1,381 30-Apr-04Initial 27.84 3,124 30-Dec-05Minimum 24.01 2,720 14-Jun-06Maximum 35.40 4,011 05-Dec-06Close 35.15 3,982 29-Dec-06

During 2006 in excess of 182million shares were traded forthe total sum of 5,503 millioneuros, 134% up on the figure forthe previous year. This volumeof dealing is equivalent to 138%of FADESA’s market capitalisa-tion at year end.

Similarly, the number of sharestraded and the mean daily tra-ding value (excluding the elec-tronic market) over the past ye-ar, when compared to 2004 and2005, is as follows:

Shares traded daily Daily trading value

2004 474,683 5,868,8672005 413,573 9,175,8642006 629,191 19,030,317VAR (06-04) 33% 224%

Shareholders

There was no significant move-ment amongst the main sharehol-ders of the Group during the fi-nancial year 2006, and thereforethe main shareholder of the com-pany, according to informationlodged with the CNMV, continued

to be Mr Manuel Jove Capellán,who held 54.6% of its share capitalindirectly, through his participa-tion in asset holding companies.

However, on 2 November thecompanies Promociones y Urba-

nizaciones Martín, S.A. (Martinsa)and Huson Big, S.L. filed a requestfor authorisation to launch a take-over bid for 100% of FADESA’sshares with the CNMV, at a priceof 35.7 euros per share. Mr Ma-nuel Jove, FADESA’s majority sha-


reholder with 54.6% of the com-pany’s shares (through the com-panies in which he has a contro-lling stake), assured the biddersthat he would accept the said bidwith all his shares even if anothercompetitive bid was later tabled.On 6 February this year the Boardof the CNMV finally authorisedthe takeover bid. In an extraordi-nary meeting held the followingday, the Board of Directors ofFADESA unanimously approvedthe favourable report on the saidtakeover bid.

On 12 March the CNMV informedthat the takeover bid tabled byMartinsa and Huson Big SL. had

Date firstName Position appointed Nature

Mr. Fernando Martín Álvarez Execurtive Chairman 15/03/2007 Proprietary/ExecutiveMr. Antonio Martín Criado Deputy Chairman 15/03/2007 ProprietaryMr. Antonio de la Morena Pardo Managing Director 28/11/2001 ExecutiveMr. Fernando Martín del Agua Director 15/03/2007 ProprietaryMr. Rafael Bravo Caro Director 15/03/2007AGUIEIRA INVERSIONES,S.L. Proprietary(represented by Mr. Juan Carlos Rodríguez Cebrián) Director 15/03/2007 ProprietaryCaja de Ahorros de Valencia, Castellón y Alicante, BANCAJA 15/03/2007 Proprietary(represented by Mr. José Luis Olivas Martínez) DirectorMr. Jesús Ignacio Salazar Bello Director 15/03/2007 ProprietaryMr. José Manuel Serra Peris Director 15/03/2007 IndependentMr. Joaquín Sánchez-Izquierdo Aguirre Director 28/11/2001 IndependentMr. José Luis Suárez Barragato Director 28/11/2001 IndependentMr. Ángel Varela Varas Secretary to the BoardMr. Federico Cañas García-Rojo Deputy Secretary to the Board

After the Board Meeting held on15 March 2007, the Appoint-ments and Remuneration Com-mittee consisted of the follo-wing members:

Name Position Nature

(Vacant) Chairman(Vacant) Deputy ChairmanMr. Antonio de la Morena Pardo Member Executive(Vacant) Member(Vacant) Secretary to the Committee

Name Position Nature

Mr. Joaquín Sánchez-Izquierdo Aguirre Chairman IndependentMr. Jesús Ignacio Salazar Bello Deputy Chairman ProprietaryMr. Fernando Martín del Agua Member ProprietaryMr. Ángel Varela Varas Secretary to the Committee Consejero

After the Board Meeting held on15 March 2007, the ExecutiveCommittee consisted of the follo-wing members:

been successful, 85% of FADESA’sshare capital having accepted it.

As a result of the takeover bid, theBoard of Directors, in a meeting

held on 15 March 2007, electedMr Fernando Martín Álvarez asExecutive Chairman of the com-pany, the Board being composedof the following members:


Information for shareholders

FADESA shareholders can ac-cess all the publicly available in-formation on the company viaits website at www.fadesa.es, bysending an e-mail to [email protected] or by calling +34981 179 200.

The companies and brokerages that have issued reports on FADESA’sshares since flotation are:

• Ahorro Corporación• Banesto Bolsa• BBVA• Caja Madrid• CSFB• Invercaixa• Cheuvreux• Espíritu Santo• Fidentiis• Fortis Bank• Ibersecurities• Kepler• Morgan Stanley• UBS

• Dexia Equities• Merrill Lynch• Interdin• Venture Finanzas• Bankinter• Cazenove• ING Financial Markets• Norbolsa• Urquijo bolsa y valores• BPI*• Lehman Brothers*

*Produced their first report on FADESA in 2006

Capital variations

A total of 1,092,273 new shareswere issued in respect of the finaldividend for the year ended 31December 2005 for the 75% ofshareholders who wished to par-ticipate in the Share DividendPlan, the issue price being set at26.85 euros per share.

Name Postion Nature

Mr. José Luis Suárez Barragato Chairman IndependentMr. Rafael Bravo Caro Deputy Chairman ProprietaryMr. José Manuel Serra Peris Member IndependentMr. Ángel Varela Varas Secretary to the Committee no miembro

After the Board Meeting held on15 March 2007, the Audit Com-mittee consisted of the follo-wing members:

Analyst coverage

L I N E S O F A C T I V I T Y

LINES OF ACTIVIT Y • Annual Report 200632

Real Estate Activity

During 2006, FADESA consolidated its presence

in the countries in which it had recently begun its

activity, such as France, Poland and Hungary,

where it launched extremely important real-

estate projects, as well as continuing its

expansion strategy with its entry into Mexico and

Bulgaria, and strengthening its status as one of

the main foreign investors in Morocco. In

addition, the company increased its sales

network with new commercial offices both in

Spain and other European countries

LINES OF ACTIVIT Y • Annual Report 2006 33

If there are two features whichdistinguish FADESA from othercompanies working in the real-estate sector, these are its diver-sification plan and its businessmodel.

Geographic diversification,thanks to its presence in all ofSpain and its international ex-pansion plan, but also productdiversification, given its develop-ment of first and second homesfor different kinds of target cus-tomers. A profile which has hel-ped it become one of the top Eu-ropean real-estate companies.

But much of FADESA’s success isthe result of being a real-estatecompany characterised by acomprehensive work philo-sophy, by means of which it co-vers the whole real-estate circle.Thus, the company itself looksfor ground on which to build,carries out its urban develop-

ment and performs the appro-priate market research studies.Its Technical Office prepares ar-chitectural projects, while itsown sales network markets itsdifferent products; the buildingand post-sales processes are al-so included in company activity,thus completing the businesscircle. This comprehensive workphilosophy enables FADESA toact quickly at each stage of theprocess, to be aware of the ne-eds of each location, and to of-fer its customers excellent valuefor money.

Diversification and Comprehensive Real Estate Service


In the late 1990s, the companystood out as one of the first Spa-nish real-estate firms to enter theinternational market, with an am-bitious expansion process outsi-de Spain, which has resulted inthe company being present inMorocco, Portugal, Hungary, Po-land, France, Mexico and Bulgaria,

and having a commercial net-work which represents the com-pany in the main European cities.Currently, FADESA is researchingthe market in yet more countries.

International FADESA

In 2000, FADESA became the firstSpanish company to go to Mo-rocco and develop real-estateprojects, and now, six years later,it is one of the main foreign in-vestors in this country, thanks toits activities in Casablanca, Sai-dia, Marrakech, Rabat, Agadirand the coast of Smir. Currently,the company is playing a veryactive role in the Moroccan go-vernment’s plan to turn thecountry into an important holi-day destination near Europe.

For this purpose, the Group is de-veloping a series of tourist resortson the shores of the Mediterrane-an Sea. This is the case of thethree tourist developments awar-ded to FADESA on the coast ofSmir, an exclusive area where theMoroccan royal family spends itssummer holidays, in which it will

invest more than 470 million eu-ros. In all, as part of these threeprojects, the Group will develophotels, golf courses, leisure andsport areas and more than 4,000homes. To the resorts in Smirmust also be added the Medite-rrania Saidia resort, which standsnext to a 7 kilometre long beach,and comprises approximately3,000 homes and 16,000 hotelbeds, as well as golf courses, leisu-re and services areas, and a mari-na with 800 berths, which will bein operation in the spring of 2007.

In addition to the Mediterrane-an Sea area, FADESA is buildingtwo other large-scale resorts:the Tangiers City Centre, develo-ped in partnership with the An-joca group, which will consist of850 homes, two hotels, a largeoffice building and leisure cen-

M o r o c c o

tre in the Tangiers bay; and theluxury resort it is developing inthe exclusive Palmeral area ofMarrakech. The project, PalmeraiMall, has an investment of 300million euros, and will includemore than 2,600 homes, threehotels, an 18-hole golf courseand a shopping centre.

FADESA’s activity in Morocco iscompleted with two promotionalresidential developments in Ra-bat and Agadir, comprising morethan 2,600 homes, which are al-most finished. To this must be ad-ded the Barceló Casablanca hotel,with a 4-star Premium rating and85 rooms, which has been in ope-ration since March, 2006.


Throughout 2006, FADESA hasstrengthened its presence inPortugal, Hungary, Poland andFrance with the launching ofnew projects, while continuingits expansion plan with its acti-vity in Bulgaria.

PORTUGAL

In 2006, FADESA, which has beenpresent in this country since thelate 1990s, boosted its activity inPortugal with its first develop-ment in Porto: Allegro Design Ho-mes, a state-of-the-art project di-rected at a young and up-markettarget audience. With this deve-lopment, the Group seeks tostrengthen its position in the re-al-estate market in Portugal, whe-re it is also researching other pro-jects, for both first- andsecond-homes, and where it iscurrently promoting the Quinta

da Prata housing project, a deve-lopment with more than 3,000homes near Lisbon.

HUNGARY

In the case of Hungary, FADESAhas continued with the construc-tion of the Central Passage Buda-pest development, which has be-en very well received, and haspurchased other land for newprojects. At the same time, thecompany is planning a resort onthe island of Csepel, south of Bu-dapest. This real-estate operationis unique in terms of its configu-ration and volume, and, in addi-tion to homes, it will include com-mercial areas, sports facilities,hotels and various public servi-ces, making it the most importanturban development in the city.

POLAND

Meanwhile, in Poland, throughits subsidiary FADESA ProkomPolska, the group has continuedwith the development of theOstoja Wilanow project, a largehousing development compri-sing approximately 1,900 ho-mes in Warsaw, and has alsopurchased more land, both inthe Polish capital and in otherparts of the country, in order tocarry out new projects.

FRANCE

For its part, France has become astrategic market for FADESA.Through its subsidiary in thiscountry, Financiere Rive GaucheFADESA, the group reached an

E u r o p e


agreement with the Town Coun-cil of Levallois-Perret to developtwo forty-two-storey high-risesnear Paris. With an investment of500 million euros, the project co-vers 110,000 square metres,90,000 of which are will be usedfor offices and commercial areas,and 20,000 for the constructionof a hotel. The Torres de Levallois,in the Collage-Front de Seinequarter, just half a kilometre fromthe Paris business area of La De-fence and four-and-a-half kilome-tres from the Eiffel Tower, will ha-ve a height of 165 metres.

In addition, in 2006, FADESA sig-ned an agreement with theNorth American fund COLONYCAPITAL to jointly develop overthe next five years a large-scalereal estate project in the town ofMassy, very close to Paris. Theproject will be set in a six-hecta-re plot of land and will cover100,000 square metres, most ofwhich will be devoted to homes,with the rest being used for offi-ces. The estimated total inves-tment is 213.5 million euros.

BULGARIA

Lastly, in November 2006FADESA announced its entry in-to Bulgaria, with a high-rise de-velopment comprising homes,commercial premises and offi-ces. With an investment of 23million euros, FADESA’s firstproject in Bulgaria will be loca-ted in the centre of Sofia, and isaimed at a middle-upper level

target audience. With this pro-ject, and following extensive re-search into the possibilities ofthe Bulgarian real estate market,FADESA begins its activity in acountry which offers great busi-ness opportunities. In fact, thegroup is already researchingother projects in this country.

A m e r i c a

In 2006, FADESA began a newphase of its ambitious internatio-nalisation plan, which until nowhad focused on Europe and Mo-rocco, by crossing the Atlanticocean to arrive at Mexico, where itwill take part in the creation of alarge tourism and residential re-sort on the Pacific coast.

The main attraction of the resortlies in its strategic geographicallocation, in the state of Nayarit, 30minutes from Puerto Vallarta, on a2-kilometre beach.The entire pro-ject, whose first stage has beennamed Litibu, covers an area of170 hectares, divided into 21 sec-

tions, four of which will be develo-ped byFADESA to build hotels,homes and leisure centres.

FADESA’s project is part of thefirst phase of a plan devised bythe Mexican government, whichby 2025 hopes to turn Cip Nayaritinto a leading tourism destinationalong the lines of the Mayan Ri-viera, in the Mexican Caribbean.


I n t e r n a t i o n a l C o m m e r c i a l i s a t i o n

The beginning of its property de-velopment activity outside theSpanish borders led FADESA toestablish local offices in all thecountries where it operates. Thecompany has adapted its com-mercialisation system in thesecountries, creating a network ofsales offices in the centre of largecities, to provide informationabout its real-estate offer, as wellas setting up sales warehouses on

the developments themselves,structures of more than 1,000square metres which feature mo-dern customer service facilities,large models and fully furnishedand decorated show flats.

In addition, given its significantsecond-home portfolio, FADESAcompletes its international acti-vity with a network of officeswhich mainly market its real esta-te offer in Spanish and Moroccantourist locations, and in Europeancapital cities like Budapest andWarsaw. This is the case of thecompany’s commercial offices inFrankfurt, London, Paris, Dublinand Stockholm.

Andalucía

Aragón

Islas Baleares

Cantabria

Castilla La Mancha

Castilla León

Cataluña

Comunidad Valenciana

Galicia

Islas Canarias

La Rioja

Madrid


Property developments in 2006 URBANIZACIÓN COSTA ESURI

CASAS & GOLF, IN HUELVA

FADESA has developed the CostaEsuri Casas & Golf residential pro-ject in the Huelva town of Aya-monte, next to the mouth of theriver Guadiana. Because of itsconfiguration and size, this pro-ject is unique, involving the cons-truction of around 6,000 Medite-rranean-style low-density homes,as well as an 18-hole golf courses,a hotel, and large shopping andleisure areas. The complex, whichcovers an area of 4,638,878 squa-re metres, is one of the most im-portant operations on the westcoast of Andalucía.

RESIDENCIAL MIRADOR DE

ALMUÑÉCAR, IN GRANADA

The Mirador de Almuñécar hou-sing development is set on the be-ach of Cantarriján, bordering theNatural Park of Cantarriján, onwhat is known as the Tropical Co-ast.The development has 211 low-density homes, including flats andapartments, as well as swimmingpools and sports areas.

RESIDENCIAL ALMENARA DEL

GUADALQUIVIR, IN SEVILLA

Five kilometres from Sevilla, onthe left bank of the river Guadal-quivir, in the town of La Algaba,the company has built the Alme-nara del Guadalquivir housing de-velopment, which comprises 600single-family and collective ho-mes. The development also featu-res a river promenade, a park,swimming pool, sports tracks and

courts and other areas devoted tocommercial and hotel activities.

URBANIZACIÓN NUEVA

CALAHONDA HOUSING, IN

MÁLAGA

Right on the Costa del Sol, betwe-en Marbella and Fuengirola,FADESA is building the Nueva Ca-lahonda housing development.Tobe exact, the project is located inMijas, five minutes from the townitself, and comprises 84 luxuryapartments and swimming pools,only five minutes from the beach.

URBANIZACIÓN ALTOS DE LA

ZUBIA, IN GRANADA

The Altos de la Zubia develop-ment comprises 272 plots of land,set in exceptional surroundings,very close to the Natural Park ofSierra Nevada, in Granada, withexcellent views of the capital. Theproject is finished off by 20,000squares metres of play areas andgreen spaces, as well as 1,850square metres of sports areas.

SPAIN

Residencial Almenaradel Guadalquivir,in Sevilla

Urbanización CostaEsuri Casas & Golf,in Huelva


Andalucía

Aragón

Islas Baleares

Cantabria

Castilla La Mancha

Castilla León

Cataluña


Galicia

Islas Canarias

La Rioja

Madrid

URBANIZACIÓN LOS CADOS DE LA

JOYOSA, IN ZARAGOZA

The Los Cados de la Joyosa hou-sing development is a large-scalereal estate project near Zaragoza,in the town of La Joyosa, in anarea of city expansion and greatnatural beauty, which also enjoysevery urban advantage. The pro-ject comprises 2,800 homes, in-cluding flats and semi-detachedhouses.

UBANIZACIÓN LAS DEHESAS DE

SAN MATEO, IN ZARAGOZA

Continuing with its commitmentto the Aragonese market, FADESAhas developed in Zaragoza ahousing project comprising morethan 2,200 homes. The Dehesasde San Mateo is a new kind of re-sidential project in this province,featuring different types of ho-mes, as well as an 18-hole golfcourse, and is located in the townof San Mateo de Gallego, only ashort distance from the capital.

Residencial Mirador deAlmuñecar, in Granada

Urbanización NuevaCalahonda, in Málaga

Urbanización LasDehesas de San

Mateo, in Zaragoza


Andalucía

Aragón

Islas Baleares

Cantabria

Castilla La Mancha

Castilla León

Cataluña


Galicia

Islas Canarias

La Rioja

Madrid

RESIDENCIAL SA MARINA, IN

PALMA DE MALLORCA

Set in the municipality of Palmaitself, and with excellent views ofthe bay, FADESA has built the SaMarina housing development, anexclusive resort comprising 166high-rise luxury homes, as well aslarge gardens, swimming poolsand paddle tennis courts.

RESIDENCIAL COSTA VERDE, IN

SANTANDER

In the beautiful Santander townof Santa Cruz de Bezana, 6 kilo-metres from the capital, FADESAhas developed the Costa Verdehousing project, a development,comprising approximately 600homes of different types: apart-ments and flats, semi-detachedhouses and plots of land.

RESIDENCIAL JARDINES DE SAN

JUAN, IN SANTANDER

The Jardines de San Juan deve-lopment comprises approxima-tely 350 homes of differenttypes, which FADESA is buildingin the coastal town of Soto de laMarina. It is aimed at a target au-dience which seeks to live nextto the beach all year round wi-thout having to give up the be-nefits of being near the centre ofSantander. The project also fea-tures large green areas.

URBANIZACIÓN SOLAGUA CASAS &GOLF, IN TOLEDO

In the town of Illescas, in Toledo,scarcely 30 kilometres from Ma-drid, FADESA has developed the

Solagua Casas & Golf residentialproject. This development com-prises more than 1,400 homes, in-cluding collective homes, semi-detached and terraced houses,built around a 9-hole golf courseand with large leisure areas andgreen spaces.

RESIDENCIAL FADESA PLAZA, IN

GUADALAJARA

FADESA´s Plaza housing develop-ment is in the town of Horche,only 13 kilometres from the capi-tal, and comprises 566 homes ofdifferent types, including flatsand semi-detached houses. Thedevelopment will be outstandingfor its excellent communications,as it is close to the forthcomingAVE station, which means it willbe only 15 minutes from the Ma-drid city centre.

Residencial Sa Marina, inPalma de Mallorca

ResidencialJardines de SanJuan, in Santander


Andalucía

Aragón

Islas Baleares

Cantabria

Castilla La Mancha

Castilla León

Cataluña


Galicia

Islas Canarias

La Rioja

Madrid

CIUDAD JARDIN SOTO DEL REAL,IN BURGOS

In the town of Buniel in Burgos,FADESA is developing the CiudadJardin Soto del Real housing pro-ject, comprising more than 1,200homes, ranging from flats, semi-detached houses, terraced hou-ses and collective homes. It is 14kilometres from the capital, and isthe company’s first large inves-tment in this province.

URBANIZACIÓN LA CAÑADA DEL

CONDE, IN VALLADOLID

With the La Cañada del Condehousing development, FADESAagain proves its commitment tothe province of Valladolid, whereit has been operating since 1996.The project is located in the townof Aldeamayor, 16 kilometresfrom the capital, and comprises1,244 plots of land which have anetwork of necessary services.

URBANIZACIÓN SOTOVERDE CASAS

& GOLF, IN VALLADOLID

Situated in the district of Arroyode la Encomienda, a stone’s throw

from the centre of Valladolid, theSotoverde Casas & Golf housingdevelopment is a unique projectin this province. It comprisesaround 800 single-family homesof different types, built around an18-hole golf course.

URBANIZACIÓN PAGO DEL NOGAL,IN VALLADOLID

Only a few minutes from Valla-dolid, in the town of Boecillo,and very close to the Technolo-gical Park of Illisoletano, FADESAhas built the Pago del Nogalhousing development, a qualityproject formed only by single-family homes of different styles:semi-detached, terraced, anddetached houses.

UrbanizaciónSotoverde Casas &Golf, in Valladolid

Ciudad Jardín Sotodel Real, in Burgos

UrbanizaciónSolagua Casas &

Golf, in Toledo

Urbanización LaCañada del Conde,

in Valladolid


Andalucía

Aragón

Islas Baleares

Cantabria

Castilla La Mancha

Castilla León

Cataluña


Galicia

Islas Canarias

La Rioja

Madrid

VALL FOSCA RESORT SKI & GOLF,IN LLEIDA

Right in the Lleida Pyrenees,FADESA has developed the Vall Fos-ca Resort Ski & Golf, a mountainproject which is centred around aski resort. The residential section ofthe project comprises 965 luxuryapartments built in the Pyreneanstyle, and located in the large pe-destrian village, where hotels andapart-hotels will also be built. Thevillage is completed by commercial,sports, restaurant and leisure areas,as well as a golf course and a spa.Allof this stands at the foot of the skilifts of the resort, which will have 30kilometres devoted to Alpine skiingand 5.7 kilometres to cross-countryskiing,as well as ski-lifts and a state-of-the-art three-cabled cable-car.

RESIDENCIAL TORRES EUROPA, IN

BARCELONA

The Torres Europa housing deve-lopment is an innovative andunusual project comprising fivetowers designed by the architectsAlonso & Balaguer, three of whichare devoted to luxury homes andthe remaining two to offices. In all,the residential section comprises291 homes featuring all the digi-tal home technology, distributedover three 19-storey towers.

URBANIZACIÓN MIRABLAU PLAYA

& CASAS & MONTAÑA, IN

BARCELONA

The Mirablau Playa & Casas & Mon-taña housing development is anexclusive project comprising 34 lu-xury homes, located in the coastal

town of Sitges, at the foot of theNatural Part of Garraf.The develop-ment is surrounded by large greenspaces and has common areas de-voted to children’s games and aprivate swimming pool.

URBANIZACIÓN EL MIRADOR DEL

EBRO, IN TARRAGONA

In the town of L’Aldea, next to thedelta of the river Ebro, set in beauti-ful natural surroundings, FADESAhas developed the El Mirador delEbro housing development, a pro-ject comprising more than 900 ho-mes, including semi-detached hou-ses, Mediterranean-style homes,low-density collective homes andplots of land.

RESIDENCIAL NOU ALBERIC, IN

VALENCIA

Aimed at a young target audienceseeking first homes, the Nou Albe-ric housing development coversan area of 58,312 square metres ofbuildable land, 600 of which willbe devoted to a commercial area.The project, which comprises mo-re than 500 homes, including flatsand apartments, has excellentcommunications with the capitalthanks to the motorway.

URBANIZACIÓN BELLAROTJA, IN

ALICANTE

The Bellarotja housing develop-ment is situated in one of themost beautiful areas of the CostaBlanca, in the town of Pego, 10 ki-lometres from Denia. The projectcomprises plots of land for indivi-dual construction, as well as mo-re than 900 Mediterranean-stylehomes of different types.

ResidencialNou Alberic,

in Valencia

ResidencialTorres Europa,in Barcelona


Andalucía

Aragón

Islas Baleares

Cantabria

Castilla La Mancha

Castilla León

Cataluña


Galicia

Islas Canarias

La Rioja

Madrid

CASAS DE MARALTA, IN

PONTEVEDRA

Casas de Maralta is FADESA’s firstproject on the south coast of Gali-cia, in Sanxenxo, to be exact, an im-portant tourist destination in sou-thern Galicia.The project comprisesaround 400 homes of differenttypes, including Mediterraneanhouses, semi-detached houses andflats,with excellent views of the sea.It is aimed at a middle-upper andup-market target audience.

URBANIZACIÓN COSTA ANÁCARA,IN LA CORUÑA

In the coastal town of Miño, in abeautiful area with some of thebest beaches in the north ofSpain, FADESA, is developing theCosta Anácara housing develop-ment, a second-home project ba-rely 15 minutes from the centre ofLa Coruña. The Costa Anácara de-velopment comprises 1,220 ho-mes of different types surroun-ded by an 18-hole golf course.

URBANIZACIÓN MIRASOL, IN

OURENSE

The Mirasol housing develop-ment is a project comprising al-most 80 homes, including semi-detached, terraced or detachedvillas. It is surrounded by greenspaces, has a swimming pool, andis only five minutes from the cityof As Burgas, in Pereiro de Aguiar.

URBANIZACIÓN BELLA VISTA, IN

OURENSE

This project is situated near thehospital, in an area undergoing ra-pid expansion, and is very close tothe city centre. It comprises 212single-family and collective homes,as well as extensive green areas.

Casas de Maralta,in Pontevedra

Urbanización CostaAnácara, in La Coruña

Vall Fosca Resort Ski& Golf, in Lleida

Urbanización Bellavista,in Ourense


Andalucía

Aragón

Islas Baleares

Cantabria

Castilla La Mancha

Castilla León

Cataluña


Galicia

Islas Canarias

La Rioja

Madrid

COMPLEJO RESIDENCIAL GRAN

GUANARTEME, IN LAS PALMAS

The Gran Guanarteme housingresort comprises 300 high-risehomes, a stone’s throw from thebeach of Las Canteras and the Jo-sé Mesa y Lopez Avenue. It is inmodern architectural style, and itsservices will be completed by acommercial and office area, withthe aim of becoming the top re-sort in Las Palmas.

VILLAS JANDIA GOLF RESIDENCIAL,IN FUERTEVENTURA

The Villas Jandia Golf housing de-velopments comprises 15 exclusi-ve luxury villas of different sizes,and facing different directions. Itslocation is superb, in a uniquearea at the foot of a golf course,with excellent communicationswith the rest of the island andvery close to its main beaches.

URBANIZACIÓN LA OLIVA CASAS &GOLF, IN FUERTEVENTURA

On the island of Fuerteventura,nextto the Natural Park of Las Dunas deCorralejo,FADESA has developed anexcellent architectural project, com-prising more than 340 homes. TheLa Oliva Casas & Golf housing deve-lopment features villas and bunga-lows, and stands next to an 18-holegolf course, as well as being veryclose to the beach.

RESIDENCIAL ROSAVILA, IN

FUERTEVENTURA

FADESA has developed the Rosa-vila first-home project in PuertoRosario, the nerve centre of the is-

land of Fuerteventura. The deve-lopment comprises more than190 high-rise 2- and 3-bedroomhomes, set in a low-density archi-tectural complex featuring a com-munal swimming pool.

RESIDENCIAL HELIOS, IN TENERIFE

The Helios residential project is si-tuated in El Médano, a quiet townon the south coast of Tenerife,the is-land’s tourist area par excellence.The development comprises 197high-rise homes,as well as large gre-en spaces, a communal swimmingpool and a children’s play area.

RESIDENCIAL LAS ACACIAS, IN

TENERIFE

The Las Acacias housing develop-ment is FADESA’s new project in thesouth of Tenerife, in the town of SanIsidro to be exact, a stone’s throwfrom the beach of El Médano. Thedevelopment comprises 124 ho-mes,including flats and apartments.

Complejo ResidencialGran Guanarteme, in

Las Palmas

Urbanización La Oliva Casas y Golf,

in Fuerteventura


Andalucía

Aragón

Islas Baleares

Cantabria

Castilla La Mancha

Castilla León

Cataluña


Galicia

Islas Canarias

La Rioja

Madrid

URBANIZACIÓN

MONCALVILLOGREEN CASAS &GOLF, IN LOGROÑO

The MoncalvilloGreen Casas &Golf housing development is oneof the most important projects tobe carried out in Logroño up tonow. It comprises more than1,000 homes of different types:flats, apartments, semi-detachedhouses and plots of land, surroun-ding a golf course.

RESIDENCIAL VILLANUEVA DE LA

CAÑADA, IN MADRID

The FADESA Group continues tostrengthen its activities in the Au-tonomous Community of Madridwith a new housing project in thetown of Villanueva de la Cañada.The development comprises 276homes of different types and hasexcellent communications withthe Madrid city centre.

RESIDENCIAL PARQUE COLMENAR,IN IN MADRID

The Parque Colmenar housingdevelopment is situated in Col-menar Viejo, to the north of thecapital. It comprises 278 homes ofdifferent types, including collecti-ve buildings, and semi-detachedand terraced houses, and will fea-ture large green spaces, as well ascommercial and leisure areas.

Residencial Rosavila,in Fuerteventura

UrbanizaciónMoncalvillo Green

Casas & Golf, inLogroño

Residencial Villanueva de laCañada, in Madrid

Residencial par-que Colmenar,in Madrid


Marrakech

Saïdia

Smir

Tangiers

Rabat

Agadir

PALMERAI MALL, IN MARRAKECH

FADESA is developing in the ex-clusive Palmeral area of Marra-kech, a luxury tourist resort withspectacular view of the Atlas.The residential section of thePalmerai Mall comprises morethan 2,600 homes, includingapartments and villas. This re-sort will also include hotels, an18-hole golf course and a shop-ping centre.

MEDITERRANIA SAIDIA

The Mediterrania Saidia resortdeveloped by FADESA on the

shores of the Mediterranean sea,overlooking a 7 kilometre-longbeach, has a residential sectioncomprising approximately 3,000homes, including 1-, 2- and 3-be-droom apartments and 3- and 4-bedroom villas, erected next to agolf course, and featuring indivi-dual landscaped plots of land.The homes are a stone’s throwfrom the beach and the marina,and they are all built in the Medi-terranean style displayed in Mo-rocco’s architecture, respectful oftheir surroundings and forming aharmonious group. The first pha-se of the residential section willbe finished by the spring of 2007.

LES JARDINS DE MOULAYA, IN

SAIDIA

Les Jardins de Moulaya is a pro-motional development compri-sing around 3,000 2-bedroomhomes. The project will also fea-ture sports facilities, and shop-ping, cultural and services areas.

ALCUDIA SMIR

Alcudia Smir is a luxurious resi-dential and tourist resort deve-loped by FADESA on the exclusi-ve Smir coast, in the MoroccanMediterranean, just over 4 kilo-metres from Ceuta. The resort,situated on a 1 kilometre-longbeach, comprising 2,189 homes,with sea views, distributed ap-proximately as follows: 1,656 re-sidential apartments, 354 touristapartments and 179 villas, andwill be completed by leisure are-as and a hotel.

MOROCCO

Alcudia Smir

MediterraniaSaïdia

Les jardins deMoulaya


TANGER CITY CENTRE

Facing the Bay of Tangiers, FADESAhas developed a residential, touristand leisure resort displaying inno-vative architecture. The residentialsection of Tanger City Centre com-prises approximately 850 homes,distributed over three buildings,which cover an area of 97,782 squa-re metres.The project is completedby a large office building and ashopping and leisure centre.

RESIDENCIAL JNANE ENNAHDA, IN

RABAT

Only a few minutes from the Ra-bat city centre, FADESA has builtthe Jnane Ennahda housing deve-lopment, a promotional projectcomprising 1,559 homes with allservices.

COMPLEJO RESIDENCIAL TAFOUKT,IN AGADIR

In the tourist town of Agadir,FADESA is building the Tafoukthousing project, comprising 1,100homes, surrounded by green spa-ces and leisure areas.

Marrakech

Saïdia

Smir

Tangiers

Rabat

Agadir

ResidencialJnane Ennahda,in Rabat

Tanger City Center

ComplejoResidencial Tafoukt,in Agadir


Lisbon

Porto

QUINTA FONTE DA PRATA, IN

LISBON

The Quinta Fonte da Prata hou-sing development covers 52hectares and comprises 3,200high-rise homes located in thetown of Moita, on the left bankof the river Tajo, facing Lisbon.The project is a new city con-cept with all services, as it fea-tures green spaces and com-mercial, leisure and sportsfacilities, as well as schools, cul-tural and health facilities.

ALLEGRO HOMES DESIGN, IN

PORTO

This modern first-home projectis situated a stone’s throw fromthe new Dragao Stadium andthe Vita Porto Shopping Centre.It is aimed at a young and up-market target audience, andcomprises 44 modern homes, aswell as a private interior squareand extensive green areas.

PORTUGAL

Budapest

CENTRAL PASSAGE BUDAPEST

Central Passage Budapest is anunusual building situated in thehistoric zone of Pest, where itstands out because of its modernarchitectural style. It is aimed atan up-market target audienceand comprises 271 high-rise ho-mes, a shopping mall and offices.

HUNGARY

Urbanización QuintaFonte da Prata, in Lisbon


Warsaw

OSTOJA WILANÓW

The Ostoja Wilanów housing pro-ject is a modern development com-prising more than 1,900 homes. It isformed by buildings in differentstyles,each with a maximum of fourstoreys,which are perfectly integra-ted into one of the most exclusiveneighbourhoods of the Polish capi-tal, only ten minutes from the citycentre. In addition, the project, ai-med at a mid to up-market targetaudience, is surrounded by 79,000square metres of green spaces de-voted to leisure activities.

POLAND

Sofia

SOFIA (BULGARIA)FADESA’s first project in the Bul-garian market is a housing deve-lopment in the south centre ofSofia. It is aimed at a mid/uppermarket target audience, and isrounded off by commercial pre-mises and offices. In all, the deve-lopment will cover a surface of36,800 square metres.

BULGARIA

Residencial Ostoja Wilanów, in Warsaw

Allegro HomesDesing, in Porto

Central PassageBudapest


Asset Management Activity

Throughout 2006, FADESA has maintained its

strategy of strengthening its asset

management division, which focuses mainly on

the building and development of hotel and

golf-course projects, as well as the creation of

other business lines in order to offer its clients

more and better services.


The year 2006 saw the beginningof FADESA’s new line of business:tourist apartments, also known ascondo-hotels, which are the re-sult of the symbiosis of the realestate and tourism sectors. Thesehomes are purchased by clientswho become the current owners,with the difference that, whenthey are not living there, they em-ploy an agency to rent it and useit as a tourist establishment, sothat, at the end of the year, theowner makes a profit. This is a

new kind of real estate product towhich FADESA has lent addedvalue. Currently, the company isbuilding condo-hotels in Jaca,Illescas (Toledo) and Morocco.

Hotels and Tourist Resorts

N e w i n i t i a t i v e s

A g r e e m e n t s w i t h h o t e l c h a i n s

FADESA currently has 16 esta-blishments in operation, whichare managed by experts, thanksto the agreements reached bythe Group. As a result of this po-licy, in 2006 FADESA signed anagreement with Globalia Corpo-ración Empresarial to create ahotel management company ina 50:50 joint venture, while 90%of properties entering the port-folio would belong to FADESAand the remaining 10% to Glo-

balia. This agreement includesthree projects in Saidia (Moroc-co), Ayamonte (Huelva) andFuerteventura.

To this agreement must be ad-ded the alliance between thecompany and the Barceló chain,which has been in place since2004, for the exploitation of ho-tel assets developed byFADESA, for which a series ofasset companies have been for-

med, of which FADESA holds83.5% of the capital, and Barce-ló the remaining 16.5%. It is alsoworth noting the agreementsigned in 2005 with the HUSAchain, whereby it will manage,under franchise, five hotels be-longing to FADESA. This agree-ment is yet another step in thebusiness relation between thetwo companies, which began in2000 with the opening of theBarcelona Mar hotel.


H o t e l s i n o p e r a t i o n

FADESA owns 16 operational establishments in different parts of Spainand Morocco.

IN SPAIN

HOTEL BARCELÓ CORUÑA

With a 4-star rating and 160 rooms,the Hotel Barceló Coruña is a mo-dern building located on the roadinto the city of La Coruña.The hotelhas a conference centre which isunparalleled in Galicia and roomsequipped with the most advancedaudiovisual systems.

HOTEL BARCELÓ ARANJUEZ

This establishment is situated nextto the Royal Casino of Aranjuez, thesecond in the Autonomous Com-munity of Madrid, and has a 4-starrating and 168 rooms,and is locatednext to a golf course.

HOTEL BARCELÓ ISLA CRISTINA

This hotel is located on the sea-front in the Huelva fishing village

of Isla Cristina. It has a 4-star ra-ting and 233 rooms, as well as 110apartments.

HOTEL BARCELÓ MARBELLA GOLF

This hotel has a 4-star rating and206 rooms, and is surrounded byone of the best and most comple-te golf resorts in Europe, the Gua-dalmina Club de Golf, which hastwo 18-holes courses and one 9-hole course.

HOTEL BARCELÓ JANDÍA PLAYA

This is one of the three hotelscomprising the resort FADESA isdeveloping in the south of Fuer-teventura. It has a 4-star ratingand 649 rooms, and is located onone of the island’s most spectacu-lar beaches.

HOTEL GLOBALIA JANDIA GOLF

This hotel, which is also located inthe Fuerteventura resort, has a 4-star rating. Its 166 apartments arenext to an 18-hole golf course.

HOTEL BARCELÓ JANDIA MAR

With a 4-star rating and 485 ro-oms, this establishment com-pletes FADESA’s resort in Fuer-teventura. It has swimmingpools, a crèche, a theatre, sportscourts and a disco, among otherfacilities.

HOTEL BARCELÓ CABO DE GATA

This hotel is located in the townof El Toyo, the Village of the 2005Mediterranean Games, and has a4-star rating and 223 rooms, aswell as a conference area and all


sorts of relaxation facilities, suchas a Jacuzzi, a gym, a sauna, treat-ment booths, etc.

HOTEL BARCELÓ JACA

This hotel, which opened in thesummer of 2006, forms part ofthe spectacular mountain tou-rist resort Lomas de Badaguas,developed by FADESA in Jaca.The 74-room establishment hasa 4-star rating, with an 18-holegolf course, a spa and fitnesscentre, and a children’s playarea, among other facilities.

HUSA HOTEL SPA VILLALBA

This hotel, situated in the Lugotown of Villalba, in an areaknown for the medicinal proper-ties of its water, has a 4-star ra-

ting and 42 rooms. It opened inJuly 2006 and aims to becomethe most important thermalcentre in Galicia, thanks to themore than 2,400 square metresgiven over to its spa.

HOTEL HUSA BARCELONA MAR

This hotel, situated in the OlympicVillage, has a 4-star rating and 75rooms, and was one of the firstones to be developed by FADESA.

APARTHOTEL CAMPUS SAN MAMES

This 3-star hotel features studioflats, and is situated near the LeonUniversity campus.

APARTHOTEL AS GALERAS

This establishment, erected next tothe beautiful beach of Bastiagueiro,in the village of Oleiros near A Co-ruña, has a 3-star rating and 96apartments with kitchen facilities.

APARTHOTEL VALLES

With a 3-star rating and 100 room,it stands in the developmentFADESA has built in Sabadell. Ithas a social hall and restaurant.

RESIDENCIAL PORTAZGO

This small 45-apartment establis-hment opened in 1993, and hasexcellent communications with ACoruña city centre.

IN MOROCCO

HOTEL BARCELÓ CASABLANCA

This hotel, situated right on theBoulevard D’Anfa, Casablanca’sfinancial and commercial quar-ter, is a 4-star superior hotel with85 rooms. It was inaugurated byFADESA in 2006, and is the com-pany’s first venture in the Moroc-can hotel sector.


U n d e r c o n s t r u c t i o n

FADESA has about a dozen hotel projects under construction in diffe-rent parts of Spain and Morocco. Cataluña, Aragon and Andalucia, aswell as the Mediterrania Saidia Resort being developed by the Groupon the Moroccan coast, are some of the places chosen to continuestrengthening its hotel activity.

IN SPAIN

HOTEL HUSA SANT JOAN

Near Barcelona, FADESA is buil-ding a 3-star 96-bedroom hotel,which will open in 2007.This esta-blishment will feature a car park,social hall and restaurant.

HOTEL AYAMONTE

Part of the Costa Esuri Casas &Golf complex FADESA is develo-ping in Ayamonte, this luxury ho-tel has 206 rooms and is erectedonly a few metres from one of thejetties of the river Guadiana andfrom two 18-hole golf courses.

HOTEL GLOBALIA AYAMONTE

Also located in the Costa Esuri Ca-sas & Golf complex, this 4-star ho-tel has approximately 185 apart-ments set around a golf course.

COMPLEJO TURÍSTICO DE

MONTAÑA JACA

Situated in the Lomas de Bada-guas mountain resort, this esta-blishment comprises 190 apart-ments, which are distributed over7 blocks and are built in the clas-sic Pyrenean style.


IN MOROCCO

FADESA currently has five hotelprojects under construction atthe Mediterrania Saidia Resort.

HOTEL BARCELÓ SAIDIA

This hotel, which is right next tothe beach, is the first 5-star hoteldeveloped by FADESA. Its 602 ro-oms will feature all amenities, andthe resort will include a wide ran-ge of restaurants, as well as sportsfacilities, a fitness and spa cluband large social areas, including atheatre, a conference hall, shopsand a children’s play area.

HOTEL IBEROSTAR SAIDIA

This 4-star hotel has 484 rooms,and is also located next to the Sai-dia beach. It will have outstanding

sports and leisure facilities, and awide range of restaurants.

HOTEL GLOBALIA SAIDIA

Situated next to the Iberostar Ho-tel, with which it shares the be-ach, this establishment will have a4-star rating and 500 rooms.

APARTAMENTOS TURISTÍCOS SAIDIA

This complex is formed by 228first-rate apartments, which are si-tuated right next to the beachand surrounded by a golf course.

VILLAS TURÍSTICAS SAIDIA

This complex comprises 104villas right next to a golf course.


P l a n n e d p r o j e c t s

In addition, FADESA has a portfolio of more than twenty hotel projectsin Spain, Morocco, Mexico and France.

IN SPAIN

APARTAMENTOS TURÍSTICOS

ILLESCAS

This complex, located in the Sola-gua Casas & Golf housing deve-lopment, will comprise more than200 apartments built next to agolf course.

HOTEL HUSA TORRELAGO

The Group is developing a 3-star ho-tel will 44 bedrooms built aroundthe housing development in the Va-lladolid town of Laguna del Duero.

HOTEL CLT

This hotel, situated in the Logisti-cal Transport Centre of Culleredo,in A Coruña, will have a 3-star ra-ting and 57 rooms.

APARTAMENTOS AYAMONTE

FADESA has a third 4-star establis-hment in its Costa Esuri Casas &Golf resort, in Ayamonte, in theplanning stage. It would compriseapproximately 160 apartments.

OTHER PROJECTS

FADESA has two hotels in theplanning stage in Granada andLleida, in its Vallfosca Ski & Golf re-sort, amongst others.


IN OTHER COUNTRIES

FRANCE

FADESA is finalising the projectfor a 4-star hotel in one of the sky-scrapers of the Torres de Levallois.The establishment will have ap-proximately 400 rooms, which willbe situated in the top 16 floors ofone of the towers.

MEXICO

The company is working on theNayarit resort, right on the PacificCoast, which will have hotels andtourist apartments right besidethe beach.

MOROCCO

FADESA has other hotels in theplanning stage in the beautifulcity of Marrakech, in the Bay ofTangiers, and on the shores of theMediterranean Sea, on the exclu-sive coast of Smir and on the be-ach of Saidia.


Golf courses

Added Value Services – Conforta

An important element of FADE-SA’s asset activity is its develop-ment policy of large residentialcomplexes linked to golf. As ofthe 31st of December, 2006, thecompany owns 24 golf courses,five of which are in operation,and the rest under constructionor in the planning stage. The de-velopment of golf courses aspart of the residential comple-xes built by the company makesFADESA a European leader inthe field of town and countryplanning tied to golf.

The strategy of delegating themanagement of hotels to ex-perts is also applied in the caseof its golf courses. To this end,FADESA has signed agreementswith leading companies withlong experience in the field ofgolf management, such as Fina-

golf or Aymerich Golf Manage-ment, with the aim of providingtheir golf courses with the hig-hest level of professionalism.

This is a business area which aimsto offer added value services, pro-viding an answer to all the needsarising from owning a home. Inthis sense, currently, anyone whosigns a contract with FADESA au-tomatically becomes a client ofConforta, and is given a loyaltycard. Among the benefits they en-joy is a free one-year life insuran-ce and a 6-month home insuran-ce, as well as discounts atFADESA’s golf courses and hotels.

In addition, through Conforta,FADESA rounds off its Compre-hensive Real Estate Service, by of-fering services covering decora-tion, care and maintenance of thehomes, gardens or pools, interna-tional removals, security systems,

renovations, and any other issuerelating to the maintenance of re-al estate assets. In 2006, the 902helpline for Conforta clients waslaunched, which is operated fromFADESA’s Contact Centre.

FADESA offers this whole rangeof services through a network ofoffices which the company has inthe different communities whereit currently has real estate pro-jects in operation, and, in 2007, isexpected to open a Conforta offi-ce in Morocco.


Other developments

SHOPPING CENTRES

FADESA’s large-scale residentialprojects all have an area devotedto commercial use, to serve theresidents of the complex and itssurrounding areas.This is the caseof the Ventura Shopping Centre(Fuerteventura), the El Toyo Shop-ping Centre (Almeria), the ParkingPalma and the Dos Regos Shop-ping Centre, as well as the forth-coming commercial areas whichwill serve other FADESA housingprojects, like the Costa EsuriShopping Centre (Ayamonte), theSaidia Shopping Centre (Moroc-co) and the Central Passage Shop-ping Centre (Budapest). The firstwill open in 2008 and the rest in2007.

In addition, in 2006 FADESA andthe VID Group signed a frame-work agreement for the exploita-tion of three recreational and lei-sure centres in the residentialprojects FADESA is developing inMorocco.

LOGISTICAL TRANSPORT CENTRE

In the district of Culleredo, near ACoruña, FADESA has built the lar-gest Logistical Transport Centre(LTC) in Galicia. It is equipped withall kinds of services, and covers anarea of more than 600,000 squaremetres, as well as having excellentcommunications with the mainGalician cities thanks to the Atlan-tic Motorway. The LTC, which is al-

ready operational, has a compre-hensive fibre optic network and24-hour security, and will be com-pleted by a restaurant, a hotel, ashopping area, a crew receptioncentre, a service station and anMOT centre, among others.


Significant Events

JANUARY

The company announced the cre-ation of a General Tourist Accom-modation Office, a decision whichforms part of its strategy to boostits asset management activity,which focuses mainly on the de-velopment of hotels, tourist ac-commodation and golf courses.

FEBRUARY

Through its subsidiary in France,Financiere Rive Gauche FADESA,the company signed an agree-ment with the Town Council ofLevallois-Perret to develop, inthe vicinity of Paris, two 42-sto-rey skyscrapers, whose expectedtotal investment will be 500 mi-llion euros, and which will standout for their state-of-the-art ar-chitecture. The Torres de Leva-llois will be 165 metres tall andwill comprise offices, a commer-cial area, and a hotel.

Also in February, FADESA signedan agreement with the BBVA Pro-perty Real Estate Fund, formali-sing the acquisition, by BBVA, of253 homes for 76 million euros. Itis the third operation of this kindsigned by these two institutionsin little more than a year.

MARCH

On the 17th of March, the BarcelóCasablanca hotel, the first jointFADESA and Barceló chain hotelin Morocco, was inaugurated. Theevent was presided over by theMoroccan Minister for Tourism,Adil DOUIRI, and the presidents ofFADESA and BARCELÓ, ManuelJove and Simón Pedro Barceló,respectively, as well as other Mo-roccan authorities and public fi-gures, such as el Walli, Moham-med EL KABBAJ, and the Mayor ofCasablanca, Omar BAHRAOUI.

Town council of LevalloisPerret

The Moroccan Ministerfor Tourism


MAY

On the 9th of May, FADESA cele-brated in La Coruña its secondGeneral Meeting of Shareholders,after the company went public, toexamine and approve the annualaccounts for 2005. In addition, theBoard agreed to appoint Antoniode la Morena Pardo as ManagingDirector, and a subsequent mee-ting of the Board of Directors for-mally appointed him as the GroupManaging Director. The sharehol-ders approved a distribution of di-vidends of 0.41 euros per share,almost twice the amount of theprevious year.

Also in May, FADESA and GlobaliaCorporación Empresarial signed aframework agreement for the cre-ation of a hotel managementcompany in a 50:50 joint venture,while the ownership of the hotelsand tourist apartments includedin the agreement will be dividedas follows: 90% to FADESA andthe remaining 10% to Globalia.This agreement initially compri-ses three projects in Saidia (Mo-rocco), Ayamonte (Huelva) andFuerteventura.

JUNE

The Group, through its subsidiaryin Poland, FADESA Prokom Pols-ka, officially presented in Warsawits first project in this country: theOstoja Wilanów housing develop-ment, a large-scale residentialproject comprising approxima-tely 1,900 homes. The presenta-tion event was presided over bythe Polish Minister for Building,Antoni Jaszczak.

In addition, the company an-nounced the construction of aluxury residential and tourist de-velopment in the exclusive areaof the Palmeral of Marrakech, anew project which establishesthe company as one of the lea-ding investors in the country,and which will have an inves-tment of 300 million euros.

Also in June, FADESA and Telefo-nica signed a framework agree-ment for the development andpromotion of homes equippedwith the latest communicationservices and solutions. Thanks tothis project, FADESA’s forthco-ming developments can featureall of these services from the mo-ment the homes, offices or com-mercial premises are delivered, ifboth companies so wish.

APRIL

FADESA and ANJOCA signed theagreement for the development ofthe Tanger City Centre. The eventwas presided over by the MoroccanMinister for Tourism,Adil DOUIRI,joi-ned by the presidents of FADESAand BARCELÓ, Manuel Jove and Si-món Pedro Barceló, respectively.

The company was present at theMadrid Real Estate Show (SIMA)where it presented its products inthe Autonomous Community ofMadrid and the rest of Spain,and itsproducts abroad.

In addition, through its subsidiaryin France, Financiere Rive Gauche,FADESA closed a deal with theNorth American fund COLONYCAPITAL to jointly develop overthe next five years a large-scale re-al estate project. This operationwill have an investment of morethan 213 million euros, to buildhomes and offices in the town ofMassy, very near Paris.

Lastly, FADESA announced theconstruction of the Alcudia Smir, aluxury complex on the Smir coast,one of the most exclusive touristdestinations in Morocco. With aninvestment of 150 million euros,the project will comprise morethan 2,000 homes, a hotel and lei-sure areas.

Left. Madrid RealEstate Show

Centre. GeneralMeeting of

Shareholders

Right. ResidencialOstoja Wilanów

(Poland)


JULY

FADESA announced its entry intoMexico, where it will take part inthe creation of Cip Nayarit, a lar-ge-scale tourist and residential re-sort on the Pacific Coast, 30 minu-tes from Puerto Vallarta and on a2-kilometre beach. The Spanishcompany will build a luxury hoteland apartments, as well as a be-ach club.

In the month of July, two of thecompany’s hotels were inaugura-ted, the Barceló Jaca and the HusaHotel Spa Villalba, both with a 4-star rating. The first has 74 roomsand is located in the Lomas de Ba-daguas housing project, develo-ped by FADESA, just 8 kilometresfrom Jaca (Huesca), and close tothe ski resorts of Astún, Candan-chú and Formigal.The second is inthe village of Villalba, in the pro-vince of Lugo, next to Alligal,known for the thermal propertiesof its water, and features a 2,100square metre spa.

AUGUST

The company took another stepin its consolidation process in Por-tugal with the launching of a resi-dential complex featuring state-of-the-art architecture right in thecentre of Porto: Allegro HomesDesign.The development compri-ses 44 homes and had an inves-tment of 12 million euros.

SEPTEMBER

LAZORA acquired 146 million eu-ros worth of FADESA assets, in anoperation which was part of theframework agreement for the bu-ying and selling of homes signedby both companies in 2005. Thetransaction, one of the biggest so-cial housing initiatives in Spain atthis time involves the purchase byLazora of a total of 1,375 homesthat FADESA has in different Spa-nish towns.

FADESA opened a Sales Office inValencia, its first in the Autono-mous Community of Valencia.Theoffice completes the commercialnetwork the group has in diffe-rent points of Spain and overseas.

The Fundación CIP awardedFADESA the Prize for Excellencein Work-Related Risk Manage-ment and Prevention, in recogni-tion of its commitment to preven-tion, which exceeds the demandsof current legislation.

The businessmen Fernando Mar-tín and Antonio Martín Criadolaunched a takeover bid for 100%of FADESA. The bid was presen-ted through Martinsa and HusonBig, the companies owned by thetwo businessmen, at a price of37.50 euros per share. Manuel Jo-vé, president of FADESA, signedan agreement with the bidderswhereby they will purchase hisentire stock, i.e. 54.61%.

HUSA Hotel Spa Villalba Prize for Excellence in Work-Related RiskManagement and Prevention

Allegro Homes Design (Porto)


NOVEMBER

FADESA continued with its planfor international expansion withits entry into Bulgaria, where itpurchased land in the centre ofSofia, destined for the construc-tion of a first high-rise develop-ment comprising homes, com-mercial premises and offices.

At its stand at the ProfessionalShowroom of the Barcelona RealEstate Fair, Meeting Point, FADESAshowed a preview of TV FADESA,its own Internet television chan-nel, which will be launched in2007, and is a new, unparalleled,pioneering commercial tool in theSpanish sector, which responds tomarket demands and whose mainpriority is to bring the product clo-ser to the customer.

DECEMBER

FADESA was awarded the deve-lopment of two tourist resort onMorocco’s Mediterranean coast,after winning a tender put out bythe Moroccan Government. Themain appeal of the resorts will betheir location, on the exclusive “Ta-muda Bay” coast, the holiday des-tination of the Moroccan Royal Fa-mily.The first resort will be locatedaround an unspoilt saltwater lake,and will comprise a luxury hotel, aspa, a golf course, an activities areawith beach clubs and a waterpark,and around 1,100 homes. The se-cond resort will comprise a golfcourse, a leisure area, a sports cen-tre, an activities area and around1,000 homes. In total, FADESA willinvest approximately 324 millioneuros in these projects.

FADESA and the Grupo VID sig-ned a framework agreement forthe exploitation of three recreatio-nal and leisure centres integratedin the residential complexesFADESA is developing in Morocco.

OCTOBER

The FADESA Group opened itsSales Office in Ceuta, in an eventattended by Juan Jesús Vivas Lara,president of the AutonomousCommunity of Ceuta. From thisoffice, FADESA will market all ofits first- and second home real es-tate products, responding to thepotential demand of this Commu-nity, and paying special attentionto the projects closest to Ceuta.

The company took another stepin its consolidation process in Po-land with a new residential pro-ject in Warsaw, with an inves-tment of 37 million euros. Thisnew operation by FADESA in thePolish capital will cover an area of66,454 square metres, on whichapproximately 400 homes will bebuilt, in a three-storey building.

Sales Office in CeutaMeeting of the President ofthe Galicia Govermentwith Fernando Martín,Antonio M. Criado and

Javier Losada

FADESA TV in BMP

C O R P O R A T E S O C I A L R E S P O N S I B I L I T Y

CORPOR ATE SOCIAL RESPONSIBIL IT Y • Annual Report 200666

Commitment to our employees

FADESA, conscious of the role played by housing

in today’s society, combines the financial

profitability of its activity with a real estate policy

which respects the environment and encourages

sustainable and rational growth. In addition,

through the María José Jove Foundation, the

Group carries out important social projects,

through different initiatives in the fields of

culture, education and medicine, with priority

given to activities aimed at children

One of FADESA’s main assets isit human resources. The profes-sional attitude of its staff is oneof the keys of its continual andpermanent growth over time. Inthis sense, staff training is one ofFADESA’s priorities, with provi-sions made for constant trainingupdates, particularly in the areasrelating to safety in the workpla-ce and the legislation regardingthe prevention of work-relatedhazards.

In addition, FADESA was one ofthe first companies to respond toone of the challenges of today’ssociety: to combine work and fa-mily life. As a result of this con-

cern, one of the main priorities ofFADESA’s former Vice-President,the kindergarten Os Pequerre-chos was created, the origin of theMaría José Jové Foundation,which is named after her. Thiscentre provides the children ofemployees with care for their firstyears of life, and gives importantsupport to working parents.

CORPOR ATE SOCIAL RESPONSIBIL IT Y • Annual Report 2006 67

One of FADESA’s main aims is tooffer its customers a Comprehen-sive Real Estate Service, whichprovides them with the best qua-lity at competitive prices. Custo-mer satisfaction is, thus, a guaran-tee for the future.

Thus, in terms of the environment,the company is committed to sus-tainable development which res-pects nature. Hence, it follows en-vironmental protocols tominimise the damage caused byharmful emissions, as well as appl-ying strict policies on the han-dling of waste products

Responsible Activity

María José Jove Foundation

The María José Jove Founda-tion, created on the 28th of Ja-nuary, 2003 in memory of MaríaJosé Jove, is particularly com-mitted to children, women andthe most disadvantaged, focu-

sing its activity on health, edu-cation and culture.

H e a l t hP R E V E N T I O N A N D I N V E S T I G A T I O N

DRUG ADDICTION

Agreement with the FundaciónMonte do Gozo Proyecto Hombrefor the financing of a unit withinthe therapeutic centre of the Pazodel Bosque de Cernadas (La Coru-ña), to provide shelter for preg-nant drug-addict women who arein the process of rehabilitation,and for their children.

CHILDHOOD OBESITY

The Foundation organised a seminarwith the objective of bringing toge-

ther families and the education andscientific communities to discuss ahealth issue which has been on theincrease in Spain the last few years.

ASTHMA AND ALLERGIES AMONGST

CHILDREN

Collaboration agreement betwe-en the Regional Government’sPublic Health Commission, theGalician Paediatric Society andthe Galician universities to carryout an epidemiological report onasthma and allergies.

RESEARCH

In 2005 FADESA signed an agre-ement with the Fundación Pro-CNIC in support of the scientificresearch activities of the Spa-nish National Cardiovascular Re-search Centre. This backing pro-vided by FADESA, together with

that from other leading Spanishcompanies, has enabled,amongst other achievements,the appointment of eminentcardiologist Dr. Valentín Fusteras Chairman of the Scientific Ad-visory Committee.

Supporting science

CORPOR ATE SOCIAL RESPONSIBIL IT Y • Annual Report 200668

DOWN’S SYNDROME

A series of conferences aboutDown’s syndrome to share in-formation with families andprofessionals regarding themany contributions music canmake to the education of peo-ple with disabilities.

DISORDER DETECTION RESEARCH

The Foundation is funding an ex-perimental project for the detec-tion of behaviour problems inyoung school-age children. Theprogramme, which is taking placeat six Galician schools, aims to en-courage tolerant attitudes whichwill contribute to the integrationof schoolchildren while reducingacademic failure and truancy.

ASPERGER’S SYNDROME

The Foundation has sponsored aseries of conferences which willbe attended by some of the Spa-nish experts who have studiedthis alteration of brain develop-ment in depth.

BREAST CANCER

The II María José Jove NationalPrize for Breast Cancer Researchwas awarded to the followingprojects: Genetic Study of Chro-mosome 8 in Invasive BreastCancer: the Role of c-MYC in Bre-ast Cancer, carried out in the Pi-tié Salpetriére Hospital in Parisby a research team led by doc-tors Angelita Rebollo and AarneFleischer; and the Genomic Pro-file of Breast Cancer: its ClinicalImplications, carried out by a te-

am from the universities of Va-lencia and Navarra, and led byJoan Climent Bataller, Jose A.Martínez and Ana Lluch.

ANOREXIA AND BULIMIA

The Foundation has participatedin the funding of the A CoruñaAnorexia and Bulimia Association(ABAC) day centre since 15th ofJune, 2004.

E d u c a t i o n K I N D E R G A R T E N A N D S C H O L A R S H I P S

ESCUELA INFANTIL OS

PEQUERRECHOS

This kindergarten has a team of11 professionals and 112 places,10 of which are for children withdisabilities. It also has a psycho-motor activity and rehabilitationroom which is unparalleled in Ga-licia and a pioneer in Spain.

SCHOLARSHIPS

FADESA has an agreement withthe University of Coruña underwhich it contributes to the crea-tion of a scholarship programme,

known as “FADESA leader-scho-larships”, for students of architec-ture and engineering. In addition,it has also created a scholarshipwhich has provided the Cyber-classroom at the Juan CanalejoHospital Complex with activity le-aders who contribute to makingtheir hospital stay more pleasantfor children and their relatives.

CÁTEDRA MARÍA JOSÉ JOVÉ

The María Jose Jové Professorshipwas created at the University of ACoruña to provide support for thosestudents who have special educa-tional needs.This initiative has led tothe creation of 36 scholarships, witha total value of 38,880 euros.

WORKSHOPS AND COURSES

Programme of free art, drama andEnglish workshops and coursesfor children, to take place duringthe school year.

CORPOR ATE SOCIAL RESPONSIBIL IT Y • Annual Report 2006 69

C u l t u r eP R I Z E S , E N C O U N T E R S A N D A C T I V I T I E S

THEATRE AWARD

The National María José Jové Chil-dren’s Playwriting Award aims toencourage the creation of theatri-cal works for children. With “¡Vivael Teatro!”, José Luis Alonso deSantos, from Valladolid, was thewinner of the last edition, which isworth 30,000 euros, the largestprize in a competition for theatri-cal works in Spain.

ART AWARD

The National María José Jové Ar-tejoven (Young Art) Award wascreated to promote young ar-tists. It is an annual nationwidecompetition with a 6,000 europrize. The winner of the first edi-tion was José María de la RubiaTejeda, from Madrid, with thework “Pili, Mili, Memories of theTwentieth Century”.

ART EXHIBITIONS AND COLLECTION

The Foundation’s interest in thepromotion of art is expressed bythe cultural project “Artistic Itine-raries”, an initiative which has ex-hibited throughout Galicia a se-lection of works by 52 artists ofthe stature of Tapiés, Barceló, Bro-to and Laxeiro. This project iscompleted by a series of periodicvisits by schoolchildren to the ArtCollection on display at the Foun-dation’s exhibition hall.

OPERA FESTIVAL

Every year, FADESA sponsors theA Coruña Opera Festival

PUPPET FESTIVAL

The Foundation has an agree-ment with the A Coruña TownCouncil whereby it organises theMaría José Jove Puppet Festival.

Investment by the María JoséJove Foundation in Non-ProfitActivities

2003 141,814 2004 283,2632005 577,1442006 822,546

Euros

A S S E T V A L U A T I O N

ASSET VALUATION • Annual Report 200672

ASSET VALUATION • Annual Report 2006 73

F I N A N C I A L I N F O R M A T I O N

F A D E S A I N M O B I L I A R I A S . A .

Annual Accounts and ManagementReport for the year ended December31, 2006

Translation of a report and financial statements originally issued in Spanish and prepared in accordance with generally accepted accountingprinciples in Spain (“Spanish GAAP”). In the event of a discrepancy, the Spanish language version prevails. Spanish GAAP may not conform to

generally accepted accounting principles in other countries.

FINANCIAL INFORMATION • Annual Report 200680

Balance sheets at December 31, 2006 and 2005

FADESA INMOBILIARIA S.A.

Thousand E

FINANCIAL INFORMATION • Annual Report 2006 81

Thousand E


Profit and loss accounts for the years ended at December 31, 2006 and 2005


Thousand E


Thousand E


ANNUAL ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 2006

1 • CORPORATE INFORMATION

1.1 • Group activities.

Fadesa Inmobiliaria, S.A. formerly UrbanizadoraInmobiliaria Fadese, S.A. (hereinafter, the com-pany) was incorporated on July 24, 1980 for an in-definite period. The Company engages mainly inpromoting and constructing real estate develop-ment projects, rental of housing and commercialpremises, as well as other real estates services.

The Company is the parent company of a holdingengaged mainly in real estate and constructionactivities. The Company’s real estate promotionactivity is carried out in Spain and Portugal.

The registered address of the company was esta-blished in A Coruña.

1.2 • Takeover bid for Fadesa Inmobiliaria, S.A.

On November 2, 2006, the companies Promocio-nes y Urbanizaciones Martín, S.A. and HUSON BIG,S. L. made a takeover bid for 113,312,799 shares,representing 100% of Fadesa Inmobiliaria, S.A.’sshare capital, at a price of 35.70 euros per share.The bid was authorized by the Board of the Spa-nish Securities Commission (hereinafter CNMV)on February 6, 2007, which signals the start of themandatory acceptance period during which timeFadesa Inmobiliaria, S. A.’s shareholders may ac-cept the offer. All the information required by cu-rrent regulations regarding this bid is available inthe corresponding Explanatory Brochure on theCNMV website.

Prior to the announcement of the takeover bid, asdescribed in the previous paragraph, on Septem-ber 28, 2006 the companies Almarfe, S. L. andAgosuier, S. L. (companies related to the Bidders’partners) and companies controlled by Mr. Ma-nuel Jove Capellán, who together hold61,884,891 shares of Fadesa Inmobiliaria, S.A., re-presenting 54.614% of its share capital, reachedan agreement whereby they made an irrevocableundertaking to accept the Offer once it was sub-mitted to, and authorized by, the regulatory body.

As part of agreements reached prior to the an-nouncement of the takeover bid, on September28, 2006, an “Asset Transfer Agreement” was sig-ned, whereby:

a) Fadesa Inmobiliaria, S.A. will acquire land inMexico from a company related to Mr. ManuelJove Capellán at a price of 118,600 thousandeuros. This acquisition will take place once thetakeover bid is completed.

b) Fadesa Inmobiliaria, S.A. will sell certain as-sets at a price of 20,177 thousand euros to en-tities related to Mr. Manuel Jove Capellán.

On the same date that these agreements weresigned, Mr. Manuel Jove Capellán, Chairman ofFadesa Inmobiliaria, S. A., informed the Bidders ofhis intention to propose to the Board of Directorsthat a special remuneration or bonus be paid tocertain employees as a reward for work perfor-med during a certain length of time in the Com-pany. The total amount, net of tax withholdings, isto be 30 million euros. The gross amount of thisspecial remuneration, amounting to 46,154 thou-sand euros, was recorded as an expense for 2006


under “Extraordinary expenses” in the accompan-ying income statement.

On October 27, 2006, Fadesa Inmobiliaria, S.A.submitted a binding offer to acquire from Arpe-gio Áreas, Promociones Empresariales, S.A. (Arpe-gio) and other shareholders, a 60.73% interest inParque Temático de Madrid, S.A., a company inwhich it already holds a 13.09% interest. On No-vember 2, 2006, Arpegio notified Fadesa Inmobi-liaria, S.A. of its acceptance of the offer.

In order not to compromise Fadesa Inmobiliaria,S.A.’s future strategy, its President informed theBidders that he was willing to acquire fromFadesa all the shares of Parque Temático de Ma-drid, S.A. under the same terms and conditions asthose of the abovementioned binding offer. OnNovember 29, 2006, the Bidders announced theiragreement to such a transaction.

At year end 2006, Fadesa Inmobiliaria, S.A. hadnot acquired the abovementioned shares of Par-que Temático de Madrid, S.A., which is a prerequi-site for Mr. Manuel Jove Capellán’s completion ofthe abovementioned transaction. Therefore, atthe time these consolidated financial statementswere prepared, neither transaction had been ca-rried out.

Extraordinary expensesThis heading includes expenses related to the ta-keover bid mentioned above and is broken downas follows:

2 • BASIS OF PRESENTATION

A • True and fair view.

The annual accounts have been obtained from theindividual accounting records of the company andare prepared based on the Spanish General Chart ofAccounts and applicable to Real Estate Companies,in order to give a true and fair view of the Compan-y’s equity, financial position and results. These 2005annual accounts have been prepared by the Com-pany’s Management, will be presented at the Gene-ral Shareholder’s Meeting and are expected to be ap-proved without modifications.

The General Shareholders Meeting held on May 9th,2006 approved the 2005 Annual Accounts.


B • Comparison of information.

The accompanying annual accounts have been pre-pared based on General Chart of Accounts of RealState Companies approved by Orden of December28, 1994, thus standard formats of financial state-ments approved by Mercantile Register are not ap-plicable.

The accompanying annual accounts are those of theindividual company Fadesa Inmobiliaria, S.A. As pa-rent company of a consolidated group, the Companyhas also prepared consolidated annual accounts.

In compliance with Spanish mercantile law, for com-parative purposes the Company’s directors have in-cluded for each of the captions presented in the ba-lance sheet, the profit and loss account, and thestatement of sources and application of funds in ad-dition to the figures of 2005, those of 2004, keepinguniformity in their presentation.

C • Accounting principles.

The accounting principles and criteria applied in thepreparation of the 2006 annual accounts are descri-bed in Note 4. All mandatory accounting principlespertinent to the Company’s equity, financial positionand results have been applied in their preparation.

The figures shown in the documents composing theannual accounts are denominated in thousand euros.

These financial statements are presented on the ba-sis of accounting principles generally accepted inSpain. Consequently, certain accounting practicesapplied by the Company may not conform to gene-rally accepted principles in other countries.

3 • APPROPRIATION OF RESULTS

The appropriation of results of the year ended 2006the Administrators will present to the Board Mem-bers at the General Shareholder’s Meeting for appro-val is as follows:

4 • ACCOUNTING PRINCIPLES ANDVALUATION CRITERIA

The accounting principles and valuation criteriaused by the Company to prepare the annual ac-counts, in accordance with the General Chart of Ac-counts and applicable to Real Estate Companies, we-re the following:

A • Start up expenses.

This chapter includes expenses incurred in capital in-creases, as well as star-up expense for new projects.They are amortized in five years, being the charge tothe Profit and Loss account for the year of 330 thou-sand euros.

B • Intangible assets.

The assets are shown at acquisition cost. Assets ac-quired under leasing arrangements are recorded asintangible fixed assets at the cash value of the assetand are amortized according to the same criteriadescribed in “Tangible assets.” The total debt repre-sented by lease instalments plus the purchase op-


tion are recorded in liabilities. The difference betwe-en the cash value and the final price (financial ex-penses) is recorded as deferred expenses, and is ta-ken to the profit and loss account based on financiala criteria.

“Software” corresponds mainly to the acquisitioncosts of computer programs, which are amortizedusing the straight-line method over a five-year pe-riod.

Administrative concessions correspond to the costfor the acquisition of a concession for the use of amineral-medicinal aquifer. This cost is amortizedusing the straight-line method over the remainingterm of the concession (18 years beginning in 2002).

Charge to the profit and loss account due to theamortization for the year 2006 amounted to 2,514thousand euros.

C • Tangible assets.

These assets are shown at the lower of acquisition orproduction.The company records the necessary pro-visions for depreciation of tangible assets when the-re is reason to doubt that the book value of the assetcannot be recovered. The Company did not take ad-vantage of any tax laws to update the value of itstangible assets.

Maintenance and repair expenses are charged to theprofit and loss account in the period incurred.

Depreciation of tangible assets is calculated basedon the straight-line method, according to the relatedestimated useful lives as follows:

An accelerated depreciation method that doublesthe rate resulting from the above mentioned usefullife is applied to second hand goods.

Depreciation charge for the year 2006 amounted to2,088 thousand euros.

D • Investments.

Equity investments are recorded at acquisitioncost, less the provision for any difference betwe-en the acquisition cost and the theoretical bookvalue of the shares, adjusted by the amount of ta-cit capital gains arising upon acquisition that re-main at year end. Nevertheless, when the acquisi-tion cost adjusted by the indicated provision ishigher than the value obtained applying rationalcriterion admitted in the practice, the provision isincreased to adjust the value in books of the par-ticipation to its realization value.

In the case of shares in companies that are alsoparent companies of a subgroup, the theoreticalbook value is calculated based on the consolida-ted net equity of the subgroup.

The Company holds the majority of shares of cer-tain companies and more than a 20% of others.As explained in Note 2, the 2006 annual accountsdo not reflect increases or decreases in the valueof said shares, which would result from applyingconsolidation criteria.


Shares in capital derived from the land contribu-ted by acquired companies are carried at the ac-quisition cost of said land.

E • Deferred expenses.

This heading corresponds to interests derivedfrom trade debts or fixed assets that mature inover one year. Said interests are charged to theprofit and loss account in accordance with a fi-nancial criteria.

F •Inventories.

Inventories are comprised of:

1 • Land and plots.Land and plots acquired to promote real estatedevelopments are recorded at the acquisitionprice, plus any other expenses directly related tothe purchase (taxes, property registration fees,etc.). This amount is transferred to “Develop-ments in progress” once construction work be-gins.

2 • Developments in progress.In addition to those already stated, this headingalso includes costs incurred into for real estatedevelopments in progress at the end of the fiscalyear. For each development these costs includethe amount for the plot, landscaping and cons-truction, as well as other directly related costs(studies and projects, licenses etc.) and financialexpenses accrued during the construction periodfor specific financing.

SHORT-TERM DEVELOPMENTS IN PROGRESS:This heading includes developments in progresswith its final construction date less than a yearfrom December 31, 2006.

LONG-TERM DEVELOPMENTS IN PROGRESS:This heading includes developments in progresswith its final construction date over a year fromDecember 31, 2006.

3 • Finished buildings.Upon completion, the Company transfers the costof the related buildings not yet sold from “Deve-lopments in progress” to “Finished buildings”.

4 • Construction-in-progress.This heading includes the total costs incurred indevelopments in which the company is hired asbuilder and will be invoiced to third parties.

The Company records the corresponding provi-sions of stock depreciation when the book valueexceeds market value. Since future losses are notexpected, the attached annual accounts do notinclude any provision for this concept.

G • Debtors

1. Other debtors.Other debtors are recorded at amounts given andclassified as short or long term based on related ma-turity dates. Interest income is recorded during theyear accrued in keeping with a financial criterion.

2. Trade debtors.Trade debtors are shown at their nominal valueswhich include discounted bills pending maturityand are recorded under “Amounts owed to creditinstitutions.”

The Company records bad debt provisions basedon estimates of balances for which recovery maybe doubtful.


H • Treasury shares

The Company carries out, as authorized by the stockholders meetings, acquisition and disposal of trea-sury shares to provide liquidity to market. These tre-asury shares are valued by the minor value betweenacquisition cost, market value and net book value.Market value should be considered the lower of themarket price at year-end or the average market pri-ce in the last quarter of the year.

When net book value of shares is lower than marketvalue, a provision is recorded against equity.

I • Deferred income

1. Official grants.This heading includes grants received to acquireland to build government-subsidized housing.They are recorded when authorized by the co-rresponding National or Autonomous Govern-ment Agency. Related amounts are recorded asincome based on a matching income and expen-se criteria whereby the balances correspondingto units sold are recorded as income for the year.Other amounts relating to units still in stock arerecorded under “Other official grants”.

2. Other deferred income.This heading relates mainly to amounts receivedfor the company’s temporary user rights to sharesof Guadalmina Golf, S.A. These amounts are takento income on a straight-line basis depending onthe term of the agreement.

J • Trade provisions

This paragraph reflects the following items:

1. Guarantee provisionsThe balance shown under the heading “Trade pro-visions” for 5,812 thousand euros reflects estima-ted future costs for small repairs to be done in re-cently sold housing developments. This cost hasbeen calculated, using statistical data, as a percen-tage of what was sold during the current and pre-vious fiscal year. The net change in 2006 for thisprovision was 2,448 thousand euros. Balance at ye-ar end amounts to 8,260 thousand euros.

The Company has also contracted all appropriate in-surance that will cover any contingencies that mayarise either during or after construction.

2. Provisions for future expenses.This heading refers to expenses to be incurred in-to for those real estate developments for which sa-le has been registered. Its value is the differencebetween estimated and actual costs. The balanceshown at year en is of 69,751 thousand euros.

3. Provision for future losses.The Company conducts an analysis of those cu-rrent housing developments which after deduc-ting marketing expenses, might throw a negativemargin. The provision will be done for the valueof future losses that might produce the afore-mentioned housing development once sold. Atthe close of fiscal year 2006 there are no losses bythis concept.

K • Provisions for liabilities and charges

1. Provision for taxesGiven the varying interpretations of the tax legisla-tion applicable to Capital Transfer Tax on mortgageloans, until 2002 the Company had adopted the cri-teria of paying this tax on the principal of these lo-


ans exclusively, based on sentences handeddown by the Supreme Court. However, in accor-dance with the principle of prudence, Groupcompanies maintain a balance of 5,922 thousandeuros in “Provision for taxes” to meet any futureobligations arising from future court sentences.As a consequence of a legal change in force sinceyear 2003, Capital Transfer Tax is being liquidatedusing as tax basis the maximum mortgage res-ponsibility.

In addition, the Group has recorded a provision of7,808 thousand euros for other tax risks.

2. Other provisions:This heading refers to liabilities and charges ari-sing from on-going litigation and amounts to1,902 thousand euros. This heading also includesthe cost to cover the Company’s responsibility torestore the net equity of those companies it par-ticipates in. For this reason, the Company has aprovision of 4,157 thousand euros to cover itsresponsibility towards Eurogalia, S.L.

3. Provisions for contingent liabilities due toconstruction defects.The Company has received judicial lawsuit forconstructive defect in delivered promotions witha total of 10,845 thousand of euros. In accordwith expert informs analyzed are being esteemthat the amount necessary to attend at the judi-cial resolutions for these motives would be 6,597thousand of euros.

L • Debts

These amounts are recorded at their repaymentvalues. They are classified as long or short-termbased on their maturity, sale, or cancellation da-tes. Those that fall due within less than 12months of the balance sheet are consideredshort-term.

Assumable mortgage loans are recorded under“Amounts owed to credit institutions” at theamount drawn down. Loans used to finance hou-sing for which there are firm sale agreements(private contracts) and which is to be deliveredwithin less than one year are classified as short-term, even if they fall due in over 12 months.

M • Income tax

Corporate income tax is calculated based on pro-fit for the year, increased or decreased accor-dingly by permanent differences between ac-counting and tax results, less any allowances ordeductions from tax payable, net of withholdingsand payments on account.

The Company also records in its balance sheetdeferred and on account taxes resulting from thetemporarily differences between the accountingand financial results.

N • Revenue recognition

Income derived from sales of buildings is recor-ded when construction is fully completed anddelivered. The amounts received in advance fromcustomers whether in the form of cash or receiva-ble trade bills from the signing of the private salecontract to the signing of the public deed are re-corded in “Advance payments received from cus-tomers” on the liabilities side of the accompan-ying balance sheet.


Income from the sale of plots will be recognizedwhen the private purchase-sale contract is sig-ned and a provision is recorded for the futurecosts to be incurred.

O • Business activities having environmentalimpact

All of the Company activities have been designedto be carried out with a minimum impact on theenvironment. Expenses incurred to minimize en-vironment impact in the real state activity are in-cluded as part of the construction cost.

P • Pension plans and other commitments

The Company has not pension plans for its em-ployees. That benefit is provided by GovernmentSocial Security.

Compensation packages to be paid to employeesfor possible lay-offs which might take place as re-sult of company restructuring or for other reasonsbeyond the employee’s control, are calculated ba-sed on years of service. Any expenses toward, thisconcept is recorded in the profit and loss accountof the year in which the event takes place.

5 • START UP EXPENSES

The activity in this heading for the year 2006 was the following:


The detail of assets under capital leases at December 31, 2006 is the following:

The main leasing agreement is for a 10 year period and at year end, there are still remaining 5.8 years.

6 • INTANGIBLE ASSETS

The activity for the various accounts included under “Intangible assets” as well as their related accumulatedamortization in 2006 was the following:


7 • TANGIBLE ASSETS

The activity in the various accounts listed under this heading, as well as the related accumulated deprecia-tion for 2006 was the following:

Net book value of tangible fixed assets serving as mortgage guarantees at year-end is as follows:


The detail of the entry “Rental property” at year end is the following:

At December 31, 2006 the detail of the plots and construction is the following:

Fully depreciated tangible assets still in use are as follows:


8 • INVESTMENTS

The activity of the different accounts under this heading for 2006 was the following:

Shares in Group companies:

The detail of this heading, as well as the relevant data at year-end obtained from the annual accountspending approval, is as follows:


Associated companies:


The activity and address of the group and associated companies are as follows:


La actividad y domicilio social de las sociedades del grupo y asociadas son los siguientes (Continuación):

(*) Indicates assets in the process of being built.

Associated Group companies activity and address:


None of the companies above are quoted in thestock exchange.

Loans to group companies.

Among loans receivable from Group Companiesthere are two profit participative loans granted toEurogalia, S.L. for 30,000 and 20,000 thousand euroseach. In both instances, the loan bear interests arebased on:

• Euribor to six months• 10% of net profits

There is a provision in place for 29,702 thousand eu-ros related to said participative loan to cover poten-tial losses that could arise in the near future, due tothe financial situation of the Subgroup Eurogalia.

Long term securities portfolio.

Mainly integrated by investments in non-quotedshares. The detail is the following:

Other information.

• The amount shown in “Public bodies”corresponds to deferred tax assets, which will be recovered in thelong term.• “Other receivables” corresponds mostly to two loans for 2,045 and 1,900 thousand euros each grantedto Parque Temático de Madrid. The maturity date for both is January 23, 2008.

Thematic Park of Madrid, S.A. shares are pledged to a loan granted by Caja Madrid bank to that company.


9 • DEFERRED EXPENSES

The activity under this heading during 2006 was the following:

10 • STOCKS

The detail of “Stocks” at December 31, 2006 was the following:

Additional information

At year end, these stocks included financial expen-ses amounting to 57,795 thousand euros, 33,275thousand euros of which were capitalized in 2006.

A portion of these stocks is mortgaged in guaran-tee of the reassignable mortgage loans grantedto finance real state developments.

At year end, the Company has entered into seve-ral contracts amounting 355,615 thousand euros

with the option to purchase some plots. Shouldthe purchase option be exercised, these plotswould be used for real estate development andsold. Of the above mentioned amount, 1,930thousand euros belong to the cost of the purcha-se option, which is included in Payments on ac-count heading.

At year end, the Company has signed sale contractsrelating to stocks of developments under construc-tion amounting to 1,697,151 thousand euros.


The net profit obtained for transactions done with the Company’s treasuryshares was 4,969 thousand euros.

The amount registered in “Other credits” mainly correspond to investments donein said companies due to the increase of their activity.

12 • TREASURY SHARES

During 2006 the Company handled the following transactions with its own shares:

11 • SHORT-TERM INVESTMENTS

The detail of this heading at year-end was the following:


13 • CAPITAL AND RESERVES

The activity under the heading “Capital and Reserves” during 2006 is as follows:

At December 31, 2006 the detail of Reserves was as follows:

Issued Capital

On May 9, 2006 the Ordinary and ExtraordinaryGeneral Meeting of Fadesa Inmobiliaria, S.A.agreed to a capital increase through the issue ofcommon stock with a par value of 0.10 euros ashare, of the same class and series as existingshares, and represented by book entries. Thenumber of shares issued was the result of divi-

ding 39,108,853.31 euros (equivalent to 85% ofthe gross dividend amount) by the issue price.The issue price was determined by averaging theweighted average changes of the Company’sshare on the continuous market (SIBE) for the fi-ve trading days immediately prior to the divi-dend payment date (May 31, 2006) and applyinga 1% discount. The difference between the abo-vementioned issue price and the par value of the


share represents an issue premium of 26.75 eu-ros per share.

The approved capital increase described in theabove paragraph was under-subscribed and con-sequently the share capital was increasedin1.092.273 subscribed shares all of them fullypaid-up at a par value of 0.10 euros a share.

As a result of the above, at December 31, 2006Fadesa Inmobiliaria, S.A.’s share capital is repre-sented by 113,312,799 fully subscribed and paid-up shares with a par value of 0.10 euros each, re-presented by book entries. These shares havebeen trading on the Madrid and Barcelona stockexchanges on the continuous market since April30, 2004. All shares have equal rights and are fre-ely negotiable.

Due to the nature of the shares, the Company isaware of the percentages of each participantonly if the participant decides to communicate itto the Comisión Nacional del Mercado de Valores(Stock Market National Commission). At the dateof the preparation of the current accounts, theonly institutions with 10% or more of subscribedcapital that made their participation known tothe Commission were Inversiones Frieira, S.L.,Frieira Gestión de Inversiones, S.L. and IAGA Ges-tión de Inversiones, S.L. each holds 23.36%,10.09% and 21.61% respectively. At year end andaccording to the same source, the Company Bo-ard Members own altogether a 58.175% of directand indirect shares in the Company.

Share premium

Share premiums amounting to 97,085 thousandeuros may be freely distributed.

Legal Reserve

According to Spanish Corporate Law, companiesmust transfer 10% of profits for the year to a legalreserve until this reserve is at least 20% of capital.At year end, the Company is compliant with thisrequirement.

Legal reserves can be used to increase capital bythe amount exceeding 10% of the new capital af-ter the increase.

With the exception already mentioned and as far asthe reserve does not exceed 20% of the share capi-tal, this reserve can only be used to compensate los-ses only if there is no other reserves available.

Canary Island Investment Reserve

The Company availed itself of the tax benefits of-fered under Law 19/94 relating to amounts allo-cated to provisions for investments in the CanaryIslands. The Company has registered a reserve of20,493 thousand euros that is undistributable un-til reinvestment is done.

Voluntary reserve, merger reserve

Can be freely distributed.


14 • DEFERRED INCOME

The activity recorded under this heading during the year 2006 was the following:

15 • PROVISIONS FOR LIABILITIES AND CHARGES

The activity under this heading in 2006 was the following:

“Other deferred income” refers to income obtained from the right to use the shares the Company owns inGualdamina Golf, S.A.


16 • PAYABLE TO CREDIT INSTITUTIONS

The detail of the various amounts owed to credit institutions at December 31, 2006 was the following:

“Government-subsidized and non-subsidizinghousing assumable mortgage loans” correspondto amounts drawn down from mortgage loanswith a number of financial institutions for mort-gages which can be assumed by the buyer when.Said loans are guaranteed by existing mortgageloans and stocks developments in progress. The-se loans are secured by mortgages on existing in-ventory and at year ended December 31 theyamount to 485,110 thousand euros, correspon-ding to the drawn down portion of mortgages to-talling 887,467 thousand euros.

Financial expenses relating to loans mentioned inparagraph above incurred this year amount to16,537 thousand euros. Of this amount, 819 thou-

sand euros correspond to subsidize housing and15,718 thousand euros to non-subsidized housing.

While most assumable mortgage loans are notpayable in less than twelve months, since theyhave maturities of over one year (as detailed inthe maturity schedule for non-current debt),Group Companies classify as current debt allamounts corresponding to the financing of pro-perties that meet the following conditions:

1) At December 31, 2006 there are firm salescommitments for which private purchase-salecontracts have been entered into with respectto the assets for which the loans were gran-ted, and


2) The estimated delivery date (public deed) is totake place less than twelve months from the ye-ar-end closing date.

The repayment schedules for debts classified as longterm and assuming that said loans have not beenpreviously reassigned would be the following:

The average interest rate on long-term liabilities was 3.51%.

At December 31, 2006, the Company had discount lines atseveral banks for various amounts. Discounted bills at yearend amounted to 77,031 thousand euros and bills discoun-ted during the year amounted to 148,326 thousand euros.

17 • TRADE CREDITORS

The 476,722 thousand euros balance of “Long-term tra-de payables” at year-end reflects amounts payable forthe acquisition of land with the following maturity dates:

18 • NON-TRADE CREDITORS

Other long-term debts correspond mainly to liabili-ties for the acquisition of shares in other companiesand will mature in the year 2008.

The 8,190 thousand euros under the “Public bodies”heading, refers to deferred tax arising from tempo-rary adjustments in the recording of corporation in-come tax, which will be reversed in the long term.The balance under this heading correspond to defe-rred taxes resulting from the dissolution of some ofthe subsidiary companies carried out last year.

Advances from customers at year end amounted to382,213 thousand euros, 172,175 thousand euroswere received in cash and the remaining in bills ofcommerce.

Of the total balance of 1,302,093 thousand euros oflong and short term trade creditors, 247,990 thou-sand euros are bills of exchange payables.


19 • INCOME AND EXPENSES

Net turnover

Company activity is carried out throughout Spain inthe amount of 1,060,481 thousand. The breakdownof net turnover by activity is as follows:

Consumption of goods

The detail of this profit and loss account headingwas the following:

Personnel costs

The detail of this profit and loss account heading isthe following:

Other personnel expenses mainly relate to employersocial security contributions for the year.

Average number of employees

In 2006 the average number of employees, by pro-fessional category, was the following:


Changes in trade provisions

The composition and the activity during the year we-re the following:

Transactions with group and associated companies

The Company carried out the following transactions withgroup and associated companies during the year 2006:

Extraordinary income and expenses.

The most significant entries were the following:

These transactions were made in euros.

20 • TAX SITUATION

Since January 1, 1999, Fadesa Inmobiliaria, S.A. as a holding company of a Group of companies has filed in-come tax under a consolidated tax scheme with group companies and is responsible for paying income taxfor the Group companies.

The following companies comprise the consolidated tax Group at year end:


Fadesa Inmobiliaria, S.A. as the parent Company; and as subsidiaries:

The reconciliation of the profit before taxes and thetax basis, is as follows:

In addition, due to the fact that it is liable to taxunder the consolidated tax system, the Companyand each of its subsidiaries have recordedamounts payable and receivable in respect of in-come tax. At December 31, 2006, there is a netbalance of 6,934 thousand euros receivable fromGroup companies, which increases the debt withpublic bodies referred to in the paragraph aboveby the same amount. The most significant creditbalances are Obralar, S.L., and Urbanizadora Clubde Campo de Logroño, S.L. with 3,067 and 2,224thousand euros respectively.

The Company has opened to inspection the lastfour fiscal years. It is not expected that the Com-pany will incur in any significant liabilities as a re-sult of the inspection.


In 2003, the Oficina Nacional de Inspección (Na-tional Inspection Office) of the AEAT (Spanish TaxAuthorities) completed its inspection and investi-gation activities relating to the periods 1996 to1998 for Corporate Income Tax, and 1997 and1998 for VAT and withholdings of personal inco-me tax. As a result, Grupo Empresarial Fadesa, S.A.,a company absorbed by Fadesa Inmobiliaria, S.A.in 1999, was also inspected and investigated bythe tax authorities for the periods 1997 to 1998.

Tax assessments were signed in the amount of783 thousand euros. The Company also signedtax assessments in disagreement in the amountof 4,799 thousand euros and a refund amount of206 thousand euros. The tax amount owed is forCorporate Taxes as it relates to disagreements forthe different criteria applied in cost allocation.

All tax liabilities arising from the abovementio-ned contested tax assessments and fines are co-vered by provisions recorded in the appendedannual accounts, as described in Note 14 “Provi-sions for commitments and contingencies”, takinginto account amounts that would be recoverablefrom fiscal years still open to inspection.

The Company intends to apply in its 2006 Corpo-rate Taxes payment deductions for 155 thousandeuros due to extraordinary reinvestment benefitsobtained from 2006 gains. Reinvestments weredone through 2006 amounting to 774 thousandeuros which qualify for said deduction.

Also, and under current fiscal law, the amountssubjected to deductions for reinvestments were5,680 thousand euros in 2003, 8,378 thousandeuros in 2004 and 2,051 thousand euros in 2005with deductions of 1,136, 1,675 and 410 thou-sand euros respectively. Reinvestments were do-ne in each of the referred fiscal years.

In reference to benefits offered by Law 19/94(changes in the Economic and Tax Regime in theCanary Islands) relating to amounts allocated to“Reserve for investments in the Canary Islands”, allreinvestments commitments due on December31, 2006 have been fully met at said date.

Under Chapter VIII of Title VII of Legislative RoyalDecree 4/2004, in 2005 the Company made non-monied contributions for a book value of 12,827thousand euros, receiving 20,180 thousand eurosin shares.

21 • GUARANTEES GIVEN TO THIRDPARTIES AND OTHER CONTINGENTLIABILITIES

Guarantees and commitments

At December 31, 2006, the Company has given gua-rantees amounting to 84,398 thousand euros to fi-nancial institutions for loans, credit lines and gua-rantees granted to Group companies.

As of December 31, the Company obtained guaran-tees from financial institutions in the amount of525,381 thousand euros. These guarantees covercash advances from clients, as well as for the diffe-rent Company housing developments.


Remuneration and other benefits receivedby the Board of Directors.

In 2006, neither Board Members nor other seniormanagement members of Fadesa Inmobiliaria,S.A., nor any shareholders represented on the Bo-ard of Directors, carried out significant transac-tions with Group Companies.

Remunerations and other considerations receivedby the Board of Directors members during the2006 amount to 3,677 thousand euros, of which2,952 thousand euros correspond to Directors’ fe-es and 725 thousand euros correspond to salaries.

Board Members do not receive any other benefitssuch as loans, pension plans, life insurance poli-cies, or the like.

Board Members do not receive any other remune-ration or consideration, neither do they sit on anyother boards of directors of other Group Compa-nies. A list of positions held by Board Members inother Group Companies is to be found in the An-nual Corporate Governance Report.

Significant transactions made with the María JoséJove Foundation (a directors related party belon-ging to the Jove family Group) correspond to dona-tions from Fadesa Inmobiliaria, S.A. amounting to321 thousand euros and the collection of a loan plusinterest amounting to 263 thousand euros.

Remunerations received during 2006 by seniormanagers amounted to 2,727 thousand euros. Ex-cept for life insurance policies which amountedto 4 thousand euros in 2006, Senior managers donot receive any other benefits, such as loans, pen-sion plans, or the like.

As indicated in Note 2.1, within the framework ofthe takeover bid for Fadesa Inmobiliaria, S. A. byPromociones y Urbanizaciones Martín, S. A andHuson Big, S. L., Mr. Manuel Jove Capellán, presi-dent of Fadesa Inmobiliaria, S. A., notified the Bid-ders of his intention to propose to the Board ofDirectors the payment of an extraordinary remu-neration or bonus to certain employees as a re-ward for their work during a certain length of timein the Company. The total amount involved, net oftax withholdings, is 30 million euros, while the es-timated gross amount is 46,154 thousand euros.

Board member participation in othercompanies.

Board Members holding stakes in other compa-nies with the same, similar or complementary ac-tivity type to that one of the Company, and theirposition or duties are the following:

22 • OTHER INFORMATION AND SUBSEQUENT EVENTS


None of the Members of the Board of Directors performthe same, similar or complementary activities to thoseof Fadesa Inmobiliaria, S.A. whether on their own or forthird parties.

The Corporate Governance Report of 2006 includes adetail of Board of Directors duties in the Companies in-tegrated in the Group Fadesa Inmobiliaria, S.A.

Auditor’s fees

The fees paid to the auditor for the audit of the 2006 an-nual accounts amounted to 75 thousand euros.

In addition, the fees paid in the year for other servicesrendered by the amounts to 91 thousand euros. Thisamount includes fees obtained by other firms belon-ging to their international network.

Subsequent events

Subsequent to year end and prior to the preparation ofthese annual accounts, no events have occurred whichcould have a significant effect thereon.

Environmental information

All of the Group’s activities have been designed to becarried out with a minimum impact on the environ-ment in particular,with regards to the Company real es-tate activity, all projects have been carried out in com-pliance with the provisions established in the“Statement of Environmental Effects” set forth in therespective project plans. Therefore the Company doesnot expect significant contingencies to arise in connec-tion with environmental protection or restoration. Con-sequently, it has not recorded any provision relating toenvironmental activities.

23 • STATEMENT OF SOURCE AND APPLICATION OF FUNDS


In A Coruña, on February 26th, 2007, the undersigned, all of whom are members of the Board of Directors ofFadesa Inmobiliaria S.A., have prepared this Management Report of the Company and its Subsidiaries for theyear 2006. The remainder of the pages that comprise the consolidated financial statements and Manage-ment Report are signed only by the Chairman and the Secretary of the Board of Directors in representationof all the Board Members.

Mr. Manuel Jove CapellánC H A I R

Ms. Felipa Jove Santos1 S T D E P U T Y C H A I R P E R S O N

Iaga Gestión de Inversiones, S.L.2 N D D E P U T Y C H A I R P E R S O N

Mr. Antonio de la Morena PardoM A N A G I N G D I R E C T O R

Mr. José María Castellano RíosM E M B E R

Mr. Modesto Rodríguez BlancoM E M B E R

Mr. José Luis Suárez BarragatoM E M B E R

Mr. Joaquín Sánchez-Izquierdo Aguirre

M E M B E R

Mr. José Luis Macía SarmientoM E M B E R

Mr. José Enrique Fernández-Llamazares Nieto

M E M B E R

Mr. Manuel Guerrero PemánM E M B E R

For the purpose of information, and with regard to the preparation and laying of the annual accounts and Ma-nagement Report, at a Meeting of the Board of Directors held on 15 March 2007 Mr Fernando Martín Álvarezwas appointed Executive Chairman of the company, the Board of Directors being constituted as follows:

Mr. Fernando Martín Álvarez-C H A I R M A N

Mr. Antonio Martín CriadoD E P U T Y C H A I R M A N


Mr. Fernando Martín del AguaM E M B E R

Mr. Rafael Bravo CaroM E M B E R

Caja de Ahorros de Valencia,Castellón y Alicante, BANCAJA

representada por

Mr. José Luis Olivas MartínezM E M B E RMr. Jesús Ignacio Salazar Bello

M E M B E R

Mr. José Manuel Serra PerisM E M B E R



M E M B E R

Aguieira Inversiones, S.L.representada por

Mr. Juan Carlos Rodríguez CebriánM E M B E R


Management Report for the year ended December 31, 2006


Fadesa Inmobiliaria, S.A. is the parent company ofthe Fadesa Group, a group of companies mainly en-gaged in the real estate and construction business.Its corporate purpose and core activities consist ofreal estate development and construction, togetherwith all related activities (purchase and sale of plots,building, urban land use management, etc.).

For Fadesa the year 2006 was characterized by anumber of significant events that occurred, whichmarked a watershed in the history of the company:

March saw a renewal of the senior managementwith the appointment of a new CEO, the creationof an Executive Committee, and the setting up offive new departments. The main purpose of the-se changes was to create an organizational struc-ture that was more focused on where Company’smain activity is carried out: the various local offi-ces or geographic business areas.

In September, a number of holding companies ofwhich Mr. Manuel Jove Capellán is the majorityshareholder reached an agreement with thecompanies of Grupo Martinsa and Mr. AntonioMartín to launch a takeover bid for 100% of thestock of Fadesa Inmobiliaria. Accordingly, on No-vember 2, Promociones y Urbanizaciones Martín,S.A. and Huson Big, S.L. requested authorizationfrom the CNMV for a takeover bid for 100% ofFadesa Inmobiliaria, S.A.’s stock at a price of 35.7euros per share.

The year also saw the continuation of the Compan-y’s international expansion process. This process hasled to the acquisition of more land in Poland, France,and Morocco, while the Company has also startedoperations in Mexico, Rumania, and Bulgaria.

Preformance of Fadesa Inmobiliaria. S.A.businesses.

In the year 2006, Fadesa Inmobiliaria, S.A. has con-solidated the business growth of the past yearsthrough its main magnitudes of profit and loss ac-counts. Specifically, revenues of the year have rea-ched 1,060.5 million euros, a growth of 19% withrespect to 2005.

The sale of homes and plots is still the main sourceof income and represents 86% of total revenues.

The net profit improved a 25% during 2006. Profitfrom ordinary activities showed a significant incre-ment (+30%) reaching a record amount for the Com-pany of 300 million euros.

The assets figure at year end also reflects theCompany’s progress reaching 3,812 million euros,an 18% more than the year before. It is especiallysignificant the increase in inventory, 417 millioneuros (+22%), a balance that encompasses both,land and work in progress.

On the liabilities side, the Company’s net equityhas increased a 24% and the net debt has reached1,628 million euros, a 40% increase with respect tothe previous year.

Performance of the Group’s businesses

Comparable net profit for 2006 amounts to 230.4million euros, 27% up on the same figure for 2005.The Directors are satisfied with these figures andputs them down to the continuing success of theCompany’s unique business model for its core bu-siness. This is evidenced by significant growth


both in absolute terms and in relative terms (mar-gins), and by the fact that the international expan-sion process initiated some years ago is now be-ginning to bear fruit.

Performance by activityThe Group’s revenues during 2006 totaled 1,279 mi-llion euros, a 31% increase, with a gross margin of40.3%, 0.6 percentage points higher than in 2005.

Real estate activity generated a turnover of 1,211million euros, with a YoY growth of over 31% andgross margin of 42%. This margin, significantlyhigher than 2003’s and 2004’s figures - 30% and37%, respectively -, is slightly higher than the figu-re achieved in the previous year. However, there isa fundamental difference between the two years:while in 2005 the activities which traditionally ha-ve a higher gross margin (the sale of land and par-cels) represented 30% of all revenue from real es-tate activity, in 2006 this percentage was only23%. The key to this positive performance lies inthe margin obtained from the delivery of homesand other residential units, which was the highestever posted by the Company at year end. Thisachievement has obviously been aided by the sig-nificant rise of house prices, albeit somewhat slo-wer than in past years, set against a moderate in-crease in the cost of the raw material – land. Butthis does not detract from the existence of otherdrivers, such as international expansion, productdiversification, or Fadesa’s healthy positioning in ahighly competitive business environment.

Turnover from this activity, the Group’s core busi-ness, therefore includes the sale of homes andother residential units, which amounted to nearly899 million euros, 44% more than in 2005, and sa-les of parcels and tracts of land, which amountedto 279.8 million euros.

The international expansion process, initiated so-me years ago with the aim of exploiting any new

business opportunities arising in other marketsthat might be of interest, is starting to have an im-pact on the Company’s overall figures. In 2006 thefollowing significant events took place:

In Mexico: Fadesa started operations in Mexicoby participating in the creation of a major resi-dential and tourist complex on a 2 kilometerbeach front, 30 minutes away from Puerto Va-llarta, consisting of a luxury hotel, apartments,and a beach club.

In France: The first major projects are under-way, including the development of a 6 hectaresite in the town of Massy, very close to Paris, incollaboration with the American investmentfund, Colony. Land in Lyon and the Île de Fran-ce region are being acquired for the construc-tion of some 2,000 homes.

In Morocco the first hotel, the Barceló Casa-blanca, was opened, and the Company wontwo tenders held by the Moroccan govern-ment for the development of two tourist re-sorts on the Mediterranean coast of Morocco,near Tetuan. Meanwhile two projects were offi-cially launched; one in Marrakech, where theGroup will invest approximately 300 millioneuros in a complex comprising 2,685 homesand the other in Kabila, where a high-end resi-dential and tourist complex will be built.

In Poland several sites under various urbandevelopment regimes were acquired in War-saw and other cities with major growth poten-tial with a view to building more than 6,000homes.

In Bulgaria, the first operation was finalizedwith the purchase of a piece of land in the cen-ter of the capital city, Sofia, earmarked for theconstruction of an initial development of high-rise housing, commercial units, and offices.


In Romania the first land was acquired, amongwhich is a site for approximately 12,000 homes inBucharest.

In Portugal the Group took a further step for-ward in the process of establishing itself with thelaunch of a residential complex featuring mo-dern architecture in the very center of Oporto.

In Hungary the acquisition of land in districtXIII was completed for the development of aresidential and commercial project involving2,700 homes. Agreements were also reachedwith District XXI City Council for the develop-ment of Csepel.

After taking into account general costs and themargins generated by all the Group’s various ac-tivities, we can conclude that the Group’s EBITDAhas improved significantly in absolute terms,+28% to 361 million euros while there has been aslight drop in terms of profitability mainly due tothe investment required by the international ex-pansion process that Fadesa is currently immer-sed in, which the Directors consider to be one ofthe cornerstones of the Company’s medium termdevelopment plan.

BacklogThe number of private contracts signed during2006 amounted to 10,055 units at a value of1,472 million euros. This represents a very positi-ve upward trend compared to the previous year(+39% and +15%, respectively) if we exclude thesale of Torres Europa de L’Hospitalet in 2005which should be considered as a an extraordinarytransaction. Bearing in that mind in 2006 theGroup delivered 6,913 units of all types (1st and2nd homes, social housing, and parcels) worth1,192 million euros, the backlog at December 31amounts to 14,822 units worth a little over 2,332million euros, which will provide a solid basis forfuture results in 2007 and 2008.

Investment in land and assetsLand is considered as inventory on Fadesa’s ba-lance sheet as the Company’s business model forits core activity - real estate development – invol-ves the acquisition of this raw material, its urbanmanagement, the design and construction of re-sidential units, and their subsequent sale. TheCompany’s inventory of available land is therefo-re one of the main indicators of the investmentmade in order to drive the company’s growth.

At December 31, 2006 the Company’s inventoryof entitled land in Spain, Portugal, Morocco, Fran-ce, Poland, Hungary, Bulgaria, Romania, and Mexi-co amounted to over 23.7 million buildable squa-re meters, 18% higher than the previous year (seeattached table).


The Group’s asset management business is cente-red on developing the hotel business which leve-rages developments for tourism on land in inven-tory zoned for such a purpose. In 2004 aframework management agreement was signedwith the Barceló chain for the development ofwhat, in principle, is to be a total of 19 hotel pro-jects. At year end the Group was operating 16 ho-tels (4 more than the previous year).

Asset valuationThe market value of the Fadesa Group’s real esta-te assets at December 31, according to the valua-tion made by CB Richard Ellis, amounts to 10,500million euros.

Research & DevelopmentDue to the nature of the company, its activities, andits structure the Company does not normally carryout research and development activities.

Own sharesDuring 2006 Fadesa Inmobiliaria, S.A. performed thefollowing transactions with own shares:

Positive income net of taxes obtained from own sha-re transactions amounted to 4,969 thousand euros.

Activities of the Audit Committee during 2006The Committee met on six occasions.

The purpose of the meetings was to review financialinformation to be submitted to the Board of Direc-tors. The Financial Director and the CEO were pre-sent at these meetings.

In the course of the year the external auditors atten-ded three meetings of the Audit Committee in orderto:

i) Analyze the audit work performed on the 2005accounts

ii) Report on the audit plan for 2006

iii) Report on the preliminary phase of the 2006audit.

In each of these meetings the Committee issued afavorable report on the quarterly accounts pre-sented by the Company for the first quarter, firsthalf year, and first nine-months of 2006, and ma-de progress in setting up the internal audit de-partment; a risk map has been produced, risks ha-ve been classified, and the Internal Audit Plan for2007 has been approved.











M E M B E R



M E M B E R









representada por


M E M B E R




M E M B E R




AUDIT REPORT ON THE ANNUAL ACCOUNTS

F I N A N C I A L I N F O R M A T I O N

FA D E S A I N M O B I L I A R I A S . A . A N D S U B S I D I A R I E S

Consolidated FinancialStatements and ManagementReport for the year endedDecember 31, 2006

Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with IFRS,

as adopted by the European Union. In the event of a discrepancy, the Spanish-language version prevails.


Table ofcontents

CONSOLIDATED BALANCE SHEET l 128

CONSOLIDATED INCOME STATEMENT l 129

CONSOLIDATED CASH FLOW STATEMENT l 130

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY l 131

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS l 132Corporate information

Main accounting principlesScope of consolidation

Business combinations and acquisition of minority interestsFinancial information by segment

Property, plant and equipmentInvestment properties

GoodwillIntangible assets

Non-current financial assetsEquity method investments

InventoriesTrade and other receivables

Other current financial assetsOther current assets

Cash and cash equivalentsNon-current assets held for sale

Share capital and reservesDeferred income

Interest-bearing loans and borrowingsProvisions

Other non-current liabilitiesTrade and other payables

Other current liabilitiesCommitments and contingencies

Income taxRevenue and expenses

Related party disclosuresAuditor’s fees

Events after the balance sheet dateBusiness risks and risk management policies

MANAGEMENT REPORT l 196

AUDIT REPORT l 204

Table of contents


FADESA INMOBILIARIA S.A. AND SUBSIDIARIESConsolidated balance sheet at December, 31 2006 and 2005

The accompanying notes 1 to 31 are an integral part of the consolidated balance sheet at December 31, 2006

Thousand E


FADESA INMOBILIARIA S.A. AND SUBSIDIARIESConsolidated Income Statement for the years ended December 31, 2006 and 2005

The accompanying notes 1 to 31 are an integral part of the consolidated balance sheet at December 31, 2006

Thousand E


FADESA INMOBILIARIA S.A. AND SUBSIDIARIESConsolidated cash flow statement for years ended December 31, 2006 and 2005

The accompanying notes 1 to 31 are an integral part of the consolidated cash flow statement for the year ended December 31, 2006

Thousand E


FADESA INMOBILIARIA S.A. AND SUBSIDIARIESConsolidated statement of changes in net equity for the years ended December 31, 2006 and 2005

Thousand E


1 • CORPORATE INFORMATION

1.1 • Group activities

Fadesa Inmobiliaria, S.A. (FADESA), hereinafter, “theParent Company” or “the Company”, was incorpora-ted on July 24, 1980 for an indefinite period. Groupcompanies are engaged mainly in:

• Acquisition and sale of land and plots, promo-ting and constructing real estate developmentprojects, rental of properties.

• Operation of hotels

• Production, manufacturing and marketingseveral industrial products in the constructionsector.

Fadesa Inmobiliaria, S.A.’s registered address is Ave-nida del Alcalde Alfonso Molina, s/n, A Coruña. Theregistered addresses of the companies within theCompany’s scope of consolidation are to be found inNote 3 of this report.

Fadesa Inmobiliaria, S.A. shares are quoted on theMadrid and Barcelona stock exchanges.

1.2 • Takeover bid for Fadesa Inmobiliaria, S.A.

On November 2, 2006, the companies Promocio-nes y Urbanizaciones Martín, S.A. and HUSON BIG,S. L. made a takeover bid for 113,312,799 shares,representing 100% of Fadesa Inmobiliaria, S.A.’sshare capital, at a price of 35.70 euros per share.The bid was authorized by the Board of the Spa-nish Securities Commission (hereinafter CNMV)on February 6, 2007, which signals the start of themandatory acceptance period during which timeFadesa Inmobiliaria, S. A.’s shareholders may ac-

cept the offer. All the information required by cu-rrent regulations regarding this bid is available inthe corresponding Explanatory Brochure on theCNMV website.

Prior to the announcement of the takeover bid, asdescribed in the previous paragraph, on Septem-ber 28, 2006 the companies Almarfe, S. L. andAgosuier, S. L. (companies related to the Bidders’partners) and companies controlled by Mr. Ma-nuel Jove Capellán, who together hold61,884,891 shares of Fadesa Inmobiliaria, S.A., re-presenting 54.614% of its share capital, reachedan agreement whereby they made an irrevocableundertaking to accept the Offer once it was sub-mitted to, and authorized by, the regulatory body.

As part of agreements reached prior to the an-nouncement of the takeover bid, on September28, 2006, an “Asset Transfer Agreement” was sig-ned, whereby:

a) Fadesa Inmobiliaria, S.A. will acquire land inMexico from a company related to Mr. ManuelJove Capellán at a price of 118,600 thousandeuros. This acquisition will take place once thetakeover bid is completed.

b) Fadesa Inmobiliaria, S.A. will sell certain assetsat a price of 20,177 thousand euros to entities re-lated to Mr. Manuel Jove Capellán.

On the same date that these agreements weresigned, Mr. Manuel Jove Capellán, Chairman ofFadesa Inmobiliaria, S. A., informed the Bidders ofhis intention to propose to the Board of Directorsthat a special remuneration or bonus be paid tocertain employees as a reward for work perfor-med during a certain length of time in the Com-pany. The total amount, net of tax withholdings, is

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


to be 30 million euros. The gross amount of thisspecial remuneration, amounting to 46,154 thou-sand euros, was recorded as an expense for 2006under “Takeover bid related expenses” in the ac-companying consolidated income statement.

On October 27, 2006, Fadesa Inmobiliaria, S.A.submitted a binding offer to acquire from Arpe-gio Áreas, Promociones Empresariales, S.A. (Arpe-gio) and other shareholders, a 60.73% interest inParque Temático de Madrid, S.A., a company inwhich it already holds a 13.09% interest. On No-vember 2, 2006, Arpegio notified Fadesa Inmobi-liaria, S.A. of its acceptance of the offer.

In order not to compromise Fadesa Inmobiliaria,S.A.’s future strategy, its President informed theBidders that he was willing to acquire fromFadesa all the shares of Parque Temático de Ma-drid, S.A. under the same terms and conditions asthose of the abovementioned binding offer. OnNovember 29, 2006, the Bidders announced theiragreement to such a transaction.

At year end 2006, Fadesa Inmobiliaria, S.A. hadnot acquired the abovementioned shares of Par-que Temático de Madrid, S.A., which is a prerequi-site for Mr. Manuel Jove Capellán’s completion ofthe abovementioned transaction. Therefore, atthe time these consolidated financial statementswere prepared, neither transaction had been ca-rried out.

Takeover-related costs, net of corporate inco-me tax.The detail of this heading is as follows:

2 • MAIN ACCOUNTING PRINCIPLES

2.1 • Basis of presentation.

The consolidated financial statements for 2006 ofFadesa Inmobiliaria, S.A. Group were prepared bythe directors at the Board of Directors’ Meetingheld on February 26, 2007, in accordance with In-ternational Financial Reporting Standards (“IFRS”)adopted by the European Union, in conformitywith Regulation (EC) 1606/2002 of the EuropeanParliament and of the Council. The consolidated fi-nancial statements have been prepared on a histo-rical cost basis, except for investment propertiesthat have been measured at fair value. The finan-cial statements will be submitted to the GeneralShareholder’s Meeting and are expected to be ap-proved without modifications.

These financial statements present fairly the Grou-p’s consolidated equity and financial position atDecember 31, 2006, and the results of the Group’soperations, changes in equity, and cash flows forthe year then ended.


The Group classifies its assets and liabilities ac-cording to whether they are current or non-cu-rrent as defined by its core activity, real estate de-velopment, which is deemed to have an averageoperating cycle of five years. For other assets andliabilities relating to the Group’s other busines-ses, assets and liabilities with a maturity of twelvemonths or less from balance sheet date are consi-dered to be current, while assets and liabilitieswith a maturity of more than twelve months fromthat date are deemed to be non-current.

The consolidated annual accounts of FadesaGroup were prepared on the basis of the accoun-ting record kept by the Company and by othergroup companies. Each company prepares its fi-nancial statements in accordance with the ac-counting principles and standards in force in thecountry in which it operates and, therefore, therequired adjustments and reclassifications weremade on consolidation to unify the policies andmethods used and to ensure their compliancewith IFRS.

The consolidated financial statements for 2005included for comparative purposes were also pre-pared in accordance with IFRS adopted by theEuropean Union on a basis consistent with thatapplied in 2006.

The financial statements are denominated in eu-ros, which is the group’s functional currency, andare rounded to the next thousand (thousand eu-ros), unless a different currency is stated.

2.2 • Basis of consolidation.

a) SubsidiariesSubsidiaries are fully consolidated and all theirassets, liabilities, income, expenses and cashflows are included in the consolidated financialstatements after making the adjustments and eli-minations relating to intra-Group transactions.

Subsidiaries are defined as companies overwhich the Parent controls half or more of the vo-ting power of the investee or, even if this percen-tage is lower, when it has the power to governthe financial and operating policies thereof. TheGroup’s control over subsidiaries was determi-ned, when applicable, considering potential vo-ting rights that can be exercised at year end.

The results of investments/divestments of subsidia-ries during the year are included in the consolidatedincome statement from the effective date of the in-vestment or until the effective date of the dives-tment, as appropriate.

The integration of operations of the parent and ofthe consolidated subsidiaries was made in accor-dance with the following basic principles:

• On acquisition, the assets, liabilities, and con-tingent liabilities of a subsidiary are measuredat their market value. Any excess of the cost ofacquisition of the subsidiary over the marketvalue of its assets and liabilities, in proportionto the Parent’s ownership interest, is recogni-zed as goodwill. Any negative difference is cre-dited to the consolidated income statement.

• The interest of minority shareholders in theequity and results of the fully consolidatedsubsidiaries is presented under equity in “Mi-nority interests” in the consolidated balancesheet and under “Profit attributable to mino-rity interests” in the consolidated income sta-tement, respectively.

• Each subsidiary has a functional currency co-rresponding to the country where it is loca-ted. The financial statements of foreign com-panies with a functional currency other thanthe euro are translated into euros as follows:


a) Assets and liabilities are translated into eu-ros at the exchange rates prevailing on thedate of the consolidated financial statements.

B) Income and expenses are translated at theaverage exchange rates for the year.

c) Equity is translated at the historical ex-change rates prevailing at the date of acquisi-tion (or at the average exchange rates in theyear it was generated, in the case of both ac-cumulated earnings and the contributionsmade), as appropriate.

• All balances and transactions between fullyconsolidated companies were eliminated onconsolidation.

Subsidiaries included in Fadesa Inmobiliaria, S.A.’sconsolidated financial statements are detailed inNote 3. Changes in the scope of consolidation in2006 and 2005 are also shown.

b) Interest in joint ventures.The Group has interests in joint ventures whichare jointly controlled entities. A joint venture is acontractual arrangement whereby two or moreparties undertake an economic activity that issubject to joint control, and a jointly controlledentity is a joint venture that involves the establis-hment of a separate entity in which each ventu-rer has an interest.

When the Group contributes or sells assets to thejoint venture, any portion of gain or loss from thetransaction is recognized according to the subs-tance of the transaction. When the Group purcha-ses assets from the joint venture, the Group doesnot recognize its share of the profits of the jointventure from the transaction until it resells theassets to an independent party.

The Group recognizes its interest in joint ventu-res using proportionate consolidation until thedate on which the Group ceases to have jointcontrol over the joint venture. The Group combi-nes its share of each of the assets, liabilities, inco-me and expenses of the joint venture with the si-milar items, line by line, in its consolidatedfinancial statements. The financial statements ofthe joint venture are prepared for the same re-porting year as the parent company, using consis-tent accounting policies. Adjustments are madeto bring into line any dissimilar accounting poli-cies that may exist.

c) Interest in associatesCompanies accounted by the equity method arethose where the Group has a significant influen-ce, but not control, over its financial and opera-tional policies. The consolidated financial state-ments recognize the participation that the Grouphas in the profits and losses of associates usingthe equity method from the moment when it be-gan to exercise a significant influence until suchtime as that influence ceases to exist. When theGroup’s share in losses exceeds the value of its in-terest, the carrying amount of the interest is nil,and any future losses will be recognized only tothe extent that that the Group has a legal or im-plicit obligation, or has made payments on behalfof the associate.

2.3 • Significant accounting judgments andestimates.

a) Judgments.When applying the Group’s accounting policies,the directors have made the following valuejudgments that impact significantly on theamounts recognized in the consolidated financialstatements:

• Real estate development revenues from landand plots sale contracts are recognized accor-


ding to percentage of completion. A theoreticalgross margin is estimated for this type of work.

• Cost of sales includes an estimate of theoutstanding costs to be incurred at that date,based on the budgets corresponding to thatdevelopment.

• A provision is recognized for after-sales wa-rranty costs for completed developments, cal-culated on the basis of a percentage of salesfor the year and for the previous year. This per-centage is based on historical statistics.

• In the real estate business, some land acqui-sitions are made by means of land swaps in-volving the future delivery of real estate de-pending on the urban development that isfinally approved. For this type of acquisitionsthe Group records the cost of acquisition andits corresponding consideration on the basisof the most reliable information it has at thetime. As a result of possible variations in theparameters used to make the valuation, it maybe necessary to make changes to the valua-tion in the future, in which case such changeswill only affect the value of the inventory andthe debt recorded. At year end, the cost recor-ded for all such transactions amounts to 222.2million euros (129.1 in 2005) of which 46.7 mi-llion euros corresponds to acquisitions madein 2006.

• The Group set aside a provision for litigationin progress which, in the opinion of the legaldepartment, will lead to future cash outlaysfor the Group.

b) Uncertainty in estimates.Key assumptions concerning the future andother key sources of estimation uncertainty atbalance sheet date for which there is a significantrisk of material adjustments to the carrying

amounts of assets and liabilities in the followingyear are as follows:

1. The Group performs an impairment test ongoodwill at least once a year. This requires anestimate of the value in use of the cash gene-rating units (CGUs) to which the goodwill isallocated. To estimate the value in use, theGroup needs to make an estimate of futureexpected cash flows from the CGUs, and to de-cide on an appropriate discount rate to calcu-late the present value of those cash flows. Thecarrying amount of goodwill at December 31,2006 was 9,245 thousand euros (10,480 thou-sand euros in 2005). More details in Note 8.

1. Impairment of tangible assets. The Groupperforms an impairment test of its tangibleassets once a year. Once the value in use ofthe industrial activity assets was analyzed, theGroup deemed it necessary to maintain theimpairment provision of 20,100 thousand eu-ros. This loss was estimated on the basis of ex-pected cash flows for the coming years, whichcould vary considerably due to the introduc-tion of a new industrial plan that is currentlybeing designed for this business.

2.4 • Summary of main accounting policies.

a) Property, plant and equipment.Property, plant and equipment are stated at acqui-sition or production cost, less accumulated depre-ciation and accumulated impairment in value.

An item of property, plant and equipment is dere-cognized upon disposal or when no future econo-mic benefits are expected from its use or disposal.Any gain or loss arising on derecognition of theasset (calculated as the difference between thenet disposal proceeds and the carrying amount ofthe asset) is included in the income statement inthe year the asset is derecognized.


Assets’ residual values, useful lives and methodsare reviewed, and adjusted if appropriate, at eachfinancial year end.

Periodic maintenance expenses are recorded in theconsolidated income statement on an accrual basisas incurred. When each major inspection is perfor-med, its cost is recognized in the carrying amountof the plant and equipment as a replacement pro-vided that recognition criteria are satisfied.

The estimated useful lives of each type of property,plant and equipment are as follows (in years):

Properties that are being constructed or develo-ped to be used in the future as investment pro-perties are classified as “Investment properties inprogress”. When the Group completes the cons-truction or development, the properties aretransferred to “Investment properties”. Any diffe-rence between the fair value of the properties at

the date of the transfer and its previous carryingamount is recognized in profit or loss.

Borrowing costs incurred directly related to ac-quisition, production or construction of property,plant and equipment are capitalized. Capitaliza-tion of borrowing costs as part of the cost of qua-lifying assets shall commence when the activitiesthat are necessary to prepare the assets for theirintended use or sale are in progress. When thecarrying amount exceeds the recoverable amountor net realizable value, the carrying amount iswritten off and an impairment loss is recognized.The interest rate used is that which relates to spe-cific-purpose financing for that development, orthe average financing rate of the company ma-king the investment.

b) Investment properties.Investment properties are properties held by theGroup to earn rentals or for capital appreciationor both.

Investment properties are measured initially atcost, including transaction costs. The costs of dayto day servicing of an investment property are ex-cluded. Subsequent to initial recognition, inves-tment properties are stated at fair value, which re-flects market conditions at the balance sheetdate. Gains or losses arising from changes in thefair values of investment properties are includedin the income statement in the year in which theyarise. Investment properties are annually assessedby a reputable qualified independent appraiserwith recent experience in fair value asset valua-tion in the areas concerned.

Investment properties are derecognized eitherwhen they have been disposed of or when the in-vestment property is permanently withdrawnfrom use and no future economic benefit is ex-pected from its disposal. Any gains or losses onthe retirement or disposal of an investment pro-


perty are recognized in the income statement inthe year of retirement or disposal.

Transfers are made to investment property when,and only when, there is a change in use, eviden-ced by ending of owner occupation, commence-ment of an operating lease to another party orending of construction or development. Transfersare made from investment property when, andonly when, there is a change in use, evidenced bycommencement of owner occupation or com-mencement of development with a view to sale.

For a transfer from investment property to ow-ner occupied property or inventory, the cost ofthe property for subsequent accounting is dee-med to be its fair value at the date of reclassifica-tion. If the property occupied by the Group as anowner occupied property becomes an inves-tment property, the Group accounts for such aproperty in accordance with the policy statedunder “Property, plant and equipment” up to thedate of reclassification. For a transfer from inven-tories to investment property, any differencebetween the fair value of the property at thatdate and its previous carrying amount is recog-nized in profit or loss.

c) Goodwill.Goodwill acquired in a business combination isinitially measured at cost, being the excess of thecost of the business combination over the Group’sinterest in the net fair value of the identifiable as-sets, liabilities and contingent liabilities. Followinginitial recognition, goodwill is measured at costless any accumulated impairment losses. Goodwillcorresponding to acquisitions made prior to Ja-nuary 1, 2004 is recorded as required under Spa-nish GAAP, and was amortized up to that date.

For the purpose of impairment testing, goodwillacquired in a business combination is, from theacquisition date, allocated to each of the Group’s

cash generating units, or groups of cash genera-ting units that are expected to benefit from thesynergies of the combination, irrespective ofwhether other assets or liabilities of the Groupare assigned to those units or groups of units.Each unit or group of units to which the good-will is allocated:

• represents the lowest level within the Group atwhich the goodwill is monitored for internal ma-nagement purposes; and• is not larger than a segment based on either theGroup’s primary or the Group’s secondary repor-ting format determined in accordance with IAS14 Segment Reporting.

Impairment is determined by assessing the reco-verable amount of the cash generating unit(group of cash generating units), to which the go-odwill relates. Where the recoverable amount ofthe cash generating unit (group of cash genera-ting units) is less than the carrying amount, animpairment loss is recognized. Where goodwillforms part of a cash generating unit (group ofcash generating units) and part of the operationwithin that unit is disposed of, the goodwill asso-ciated with the operation disposed of is includedin the carrying amount of the operation whendetermining the gain or loss on disposal of theoperation. Goodwill disposed of in this circums-tance is measured based on the relative values ofthe operation disposed of and the portion of thecash generating unit retained.

d) Intangible assets.Intangible assets acquired separately are measu-red on initial recognition at cost. Following initialrecognition, intangible assets are carried at costless any accumulated amortization and any accu-mulated impairment losses. The cost of intangi-ble assets acquired in a business combination isits fair value as at the date of acquisition. Inter-nally generated intangible assets, excluding capi-


talized development costs, are not capitalizedand expenditure is charged against profits in theyear in which the expenditure is incurred.

The useful lives of intangible assets are assessed tobe either finite or indefinite. Intangible assets with fi-nite lives are amortized over the useful economic li-fe and assessed for impairment whenever there is anindication that the intangible asset may be impai-red. The amortization period and the amortizationmethod for an intangible asset with a finite useful li-fe are reviewed at least at each financial year end.Changes in the expected useful life or the expectedpattern of consumption of future economic benefitsembodied in the asset is accounted for by changingthe amortization period or method, as appropriate,and treated as changes in accounting estimates.Theamortization expense on intangible assets with fini-te lives is recognized in the income statement.

The specific intangible assets of the Group are: a)Administrative concessions, which are recorded attheir acquisition cost and are amortized on the basisof the concession period, and, b) Software, recordedat their acquisition cost and amortized using thestraight-line method over a five year period.

The gain or loss arising from derecognition of an in-tangible asset shall be determined as the differencebetween the net disposal proceeds, if any, and thecarrying amount of the asset. It shall be recognizedin the profit or loss when the asset is derecognized.

e) Financial instruments.Financial assets.The Group classifies its non-current and current fi-nancial assets, excluding investments accounted forusing the equity method (see Note 11) and assetsclassified as held-for-sale, in four categories:

• Loans and receivables: These items are measu-red at amortized cost, which is basically theamount of cash delivered, minus principal pay-ments, plus the accrued interest receivable, in thecase of loans, and the present value of the consi-deration paid, in the case of receivables.

• Held-to-maturity investments: Investments thatthe Group has the intention and ability to hold tothe date of maturity, which are also measured atamortized cost.

• Financial assets at fair value through profit orloss: These include the held-for-trading financialassets and financial assets that are managed andassessed at fair value. They are recognized in theconsolidated balance sheet at fair value and thechanges in fair value are recognized in the con-solidated income statement. At December 31,2006 and 2005 there were no assets of this natu-re.

• Available-for-sale financial assets: These com-prise all other financial assets that do not fall in-to any of the three aforementioned categories,and mostly correspond to equity investments(see Note 10). These assets are recognized in theconsolidated balance sheet at fair value whenfair value can be

• Reliably determined. Since it is usually not possi-ble to determine reliably the fair value of inves-tment in companies that are not publicly listed,when this is the case, such investments are measu-red at acquisition cost or at a lower amount if the-re is evidence of impairment.Changes in fair value,net of the related tax effect, are recognized with acharge or credit, as appropriate, to “Net equity: un-realized assets and liabilities revaluation reserve”,until these assets are disposed of,at which time thecumulative balance of this account relating to tho-se assets is recognized in full in the ConsolidatedIncome Statement. If fair value is lower than acqui-


sition cost, the difference is recognized directly inthe Consolidated Income Statement.

Financial liabilities.All loans and borrowings are initially recognized atthe fair value of the consideration received less di-rectly attributable transaction costs. After initial re-cognition, interest bearing loans and borrowings aresubsequently measured at amortized cost using theeffective interest method.

Fair value of financial instruments.

Non-current financial assetsFor long-term loans granted there is no differencebetween fair value and carrying amount since all lo-ans granted accrue interest at market rates.

Financial assets available for sale are carried at theirfair value or, if fair value cannot be reliably measu-red, at acquisition cost less impairment.

Trade and other receivables.Long-term accounts receivable (over one year) arecarried at fair value as indicated in Note 13 of thisreport. Short-term accounts receivable (less thanone year) the Group’s Directors consider theircarrying amount to be a reasonable approxima-tion of fair value.

Current financial assetsFor short-term loans granted there is no differencebetween fair value and carrying amount since all lo-ans granted accrue interest at market rates.

For other current financial assets, the Group’s Direc-tors consider their carrying amount to be a reasona-ble approximation of fair value.

Debts with credit institutionsFor short- and long-term debts with credit institu-tions there is no difference between fair value andcarrying amount since all loans granted accrue inte-

rest at market rates. No financial instruments with animplicit interest rate have been entered into.

Trade and other payables.Group’s Directors consider that the carrying amountof the items recorded in this heading of the consoli-dated balance sheet to be a reasonable approxima-tion of fair value.

The main financial instruments used by the Groupare bank loans, credits, finance leases, hire purcha-se agreements, cash, bills of exchange accepted bycustomers, and short-term deposits. The main pur-pose of these financial instruments is to financethe Group’s operations. The Group also has otherfinancial assets and liabilities such as trade ac-counts receivable and payable.

f) Investments accounted for the equity method.The Group’s investment in an associate is accoun-ted for under the equity method of accounting. Ingeneral terms, the Group has a significant influen-ce in an associate company when a participationhigher than 20% is held.

Under the equity method, the investment in the as-sociate is carried in the balance sheet at cost pluspost acquisition changes in the Group’s share of netassets of the associate, including when applicable,the elimination of transactions carried out withGroup’s companies, plus any unrealized gain relatedto goodwill paid on acquisition of the associate.

If the resulting amount were negative, the Group’sparticipation in the associate is deemed recordedas nil in the consolidated balance sheet unlessthere is an obligation to make good the compan-y’s asset position, in which case a provision forrisks and charges is recorded.

Dividends received from an investee reduce thecarrying amount of the investment. The Group’sshare of the profit or loss of the investee is recogni-


zed in the Group’s consolidated profit or loss, net oftax effect, in “Income from companies accountedfor under the equity method”, unless they relate toincome recorded by the associate in net equity inwhich case they are recorded directly in net equity.

g) Inventories.Inventories are valued at the lower of cost and netrealizable value.

Inventories of real estate activity.• Land and plots: Land and plots acquired topromote real estate developments are recor-ded at acquisition cost, plus any other expen-ses directly related to the purchase (taxes,property registration fees, etc.). This amount istransferred to “Developments in progress” on-ce construction work begins.

• Development in progress: This includes thetotal costs incurred for real estate develop-ment in progress at the end of the fiscal year.For each development, these costs includedthe amount for the plot, landscaping andconstruction, as well as other directly relatedcosts (studies and projects, licenses, etc.) andfinancial expenses accrued during the cons-truction period for specific financing.

• Finished buildings: Upon completion of eachreal estate development, the companies of theGroup transfer the cost of the related buildingsnot yet sold from “Development in progress” to“Finished buildings”.

• Construction-in-progress: This includes the to-tal costs incurred in developments in whichGroup companies act as builders, the amounts ofwhich will be invoiced to third parties.

Real estate activity inventories value is based onspecific identification of their individual costscomponents.

Industrial inventory.• Raw materials: are valued at the lower of costand net realizable value using weighted ave-rage cost

• Finished products and work in progress: thecost of direct materials and labor plus a pro-portion of manufacturing overhead based onnormal operating capacity but excluding bo-rrowing costs

Net realizable value is the estimated selling price inthe ordinary course of business, less estimated costsof completion and the estimated costs necessary tomake the sale.

h) Cash and cash equivalents.Cash and short term deposits in the balance sheetcomprise cash at banks and in hand and shortterm deposits with an original maturity of threemonths or less, since the acquisition or deposit ofthe financial asset.

For the purpose of the consolidated cash flow state-ment, cash and cash equivalents consist of cash andcash equivalents as defined above, net of outstan-ding bank overdrafts.

i) Impairment of asset value.At each year end the Group assesses whether itsassets are impaired. If there is any indication ofimpairment, or when an annual impairment testis required, the Group estimates the recoverableamount of assets. The recoverable amount of anasset or CGU is the higher of its fair value lesscosts to sell and its value in use, and is determi-ned individually for each asset, unless the assetdoes not generate cash inflows that are largelyindependent of those from other assets or groupof assets. When the carrying amount of an assetexceeds its recoverable amount, the asset is con-sidered impaired and is written down to its reco-verable amount.


When calculating value in use, future cash inflowsare discounted to their present value using a pre-tax discount rate that a pre-tax discount rate thatreflects current market assessments of the timevalue of money and the risks specific to the asset.Impairment losses of continuing operations arerecognized in the income statement. in those ex-pense categories consistent with the function ofthe impaired asset.

At each year end an assessment is also made as towhether there are indications that the impairmentloss previously recognized may no longer exist or isdiminished. Where such indications exist, the reco-verable value will be estimated. A previously recog-nized impairment loss is only reversed if there hasbeen a change the estimates used to determinethe asset’s recoverable amount since the last im-pairment loss was recognized. If this is the case, theasset’s carrying amount is increased to its recovera-ble value. Any such increase should not exceed thecarrying amount that would have been recorded,net of amortization, had no impairment loss beenrecorded for the asset in previous years. This rever-sal is recorded in the income statement. After thisreversal, the depreciation charge is adjusted in fu-ture periods to allocate the asset’s revised carryingamount, less any residual value, on a systematic ba-sis over its remaining useful life.

j) Treasury shares.Own equity instruments which are reacquired (trea-sury shares) are deducted from equity. Gain or loss isrecognized in accumulated earning of the netequity. No gain or loss is recognized in profit or loss.

k) Earnings per share.Basic earnings per share are calculated by divi-ding net profit for the year attributable to the Pa-rent by the weighted average number of ordinaryshares outstanding during the year, excluding theaverage number of shares of the Parent held bythe Group companies.

Diluted earnings per share are calculated by divi-ding net profit for the year attributable to the Pa-rent by the average number of ordinary sharesoutstanding during the year. During 2005 theGroup did not carry out any transaction that repre-sented a diluted earnings per share different fromthe basic earnings per share at year end.

In addition, in 2006 net comparable basic and dilu-ted earnings per share are calculated by dividing netprofit attributable to ordinary equity holders of theparent and thus, do not include expenses corres-ponding to the public offering of shares, by theweighted average of ordinary shares outstandingduring the year, less the number of parent companyshares held by the Group.

l) Dividends.Any interim dividend to be paid out of the Grou-p’s profit on approval by the Board of Directorswould be presented as a deduction from theGroup’s equity. This did not occur in 2006 and2005. The dividend proposed by Fadesa Inmobi-liaria, S.A.’s Board of Directors to the Annual Ge-neral Meeting of Shareholders will not be deduc-ted from equity until it has been approved by theAnnual General Meeting of Shareholders. In theParent Company’s annual accounts, given theexistence of a takeover bid for 100% of Fadesa In-mobiliaria, S.A.’s stock, the Board of Directors hasproposed not to distribute a dividend for 2006. In2006, on approval by the Annual General Meetingof Shareholders, a dividend was paid out of pro-fits for 2005 in the amount of 0.41 euros gross pershare, or 46,010 thousand euros.

m) Deferred income.

Official grants.Government grants are recognized where there isreasonable assurance that the grant will be recei-ved and all attaching conditions will be compliedwith. When the grant relates to an expense item,


it is recognized as income over the period neces-sary to match the grant on a systematic basis tothe costs that it is intended to compensate. Whe-re the grant relates to an asset, the fair value iscredited to a deferred income account and is re-leased to the income statement over the expec-ted useful life of the relevant asset by equal an-nual installments.

Other deferred income.This heading relates mainly to amounts receivedfor the Parent company’s temporary transfer of theusufruct shares that the company holds in Guadal-mina Golf, S.A. These amounts are taken to incomeon a straight-line basis depending on the term ofthe share transfer agreement.

n) Provisions.The present obligation at the consolidated balan-ce sheet date arising from past events whichcould give rise to a loss for the Group which is un-certain as to its amount and timing are recogni-zed as provisions in the consolidated balancesheet at the present value of the most probableamount that it is considered the Group will haveto disburse to settle the obligation. Provisions arequantified on the basis of the best informationavailable at the date of preparation of the conso-lidated financial statements on the consequen-ces of the event living rise to them and are revie-wed and adjusted at the end of each year.

Where the Group expects some or part of a provi-sion to be reimbursed, for example under an insu-rance contract, the reimbursement is recognizedas a separate asset but only when the reimburse-ment is virtually certain. The expense relating toany provision is presented in the income state-ment net of any reimbursement.

Non-current provisions.The following items are included in under this he-ading:

1. Provision for retirement awards: GroupCompanies have no retirement pension sche-mes for their employees other than the cove-rage provided by the state Social Securityscheme. The collective bargaining agree-ments of some Group Companies include theobligation to make a one-off payment to so-me employees upon reaching retirement ageif they meet certain conditions regarding thenumber of years worked in the company. Pro-vision liability is recognized based on an ac-tuarial calculation. The balance at year end ofthat provision amounts to 99 thousand euros(60 thousand euros in 2005). See Note 21.

2. Provisions for tax liabilities: to cover litiga-tion or tax risks jointly amounting to 14,953thousand euros (12,289 thousand euros in2005). Of the balance recorded in 2006, 5,922thousand euros (4,481 thousand euros in2005) correspond to the estimated potentialloss resulting from rulings against GroupCompanies by the courts or tax authorities inrespect of the ITPAJD (Transfer Tax and StampDuty). Also, in order to cover claims arisingfrom tax audits and related litigation, provi-sions for tax assessments relating to the va-rious taxes payable by Group Companiesamounting to 7,808 thousand euros (7,808thousand euros in 2005) were set aside. Addi-tionally, during 2006 a provision was made tocover a number of risks of a fiscal nature per-taining to Group Companies operating abro-ad. This provision amounted to 1,223 thou-sand euros (nil in 2005).

3. Provision for contingent liabilities due toconstruction defects: The Company is invol-ved in a number of lawsuits for constructiondefects in delivered developments amountingto 10,845 thousand euros (12,169 thousandeuros in 2005). Expert reports estimate thatthe amount required to settle any potential


rulings against the Company in this respect is6,597 thousand euros (4,897 thousand eurosin 2005). See Note 21.

4. Other provisions: Correspond to the esti-mated contingent liabilities related to litiga-tion in progress. The balance of provisions re-corded by Group Companies in this respectamounts to 2,785 thousand euros (2,165 thou-sand euros in 2005). See Note 21.

Current provisions.

This heading includes the following items:

1. Guarantee provisions: The balance recordedof 8,738 thousand euros (6,273 thousand eurosin 2005) reflect estimated future costs for smallrepairs to be performed in recently sold hou-sing developments. This cost has been calcula-ted, using statistical data, as a percentage of cu-rrent and previous year sales.The net change inthe current year for this provision was 2,465thousand euros (1,533 thousand euros in2005). In addition, to cover any contingenciesthat may occur during the construction periodand after the developments are completed, theGroup has contracted some compulsory andvoluntary insurance. See Note 21.

2. Provisions for costs to be incurred: This re-fers to expenses to be incurred for real estatedevelopments for which a sale has been re-corded. Its value is the difference betweenbudgeted and actual costs. The balance at ye-ar end amounts to 33,368 thousand euros(25,632 thousand euros in 2005). See Note 21.

o) Taxes.

Current taxes.Current tax assets and liabilities for the current andprior periods are measured at the amount expected

to be recovered from or paid to the tax authorities.The tax rates and tax laws used to compute theamount are those that are enacted or substantivelyenacted by the balance sheet date.

Income tax.Income tax is recognized in the consolidated inco-me or in equity accounts in the consolidated balan-ce sheet depending on where the profits or lossesgiving rise to it have been recognized. Differencesbetween the carrying amount of the assets and lia-bilities and their tax bases give raise to deferred taxassets and liabilities, which are measured at the taxrates that are expected to apply in the period whenthe asset is realized or the liability is settled.

Deferred tax liabilities are recognized for all taxabletemporary differences, except:

• where the deferred tax liability arises from theinitial recognition of goodwill or of an asset orliability in a transaction that is not a businesscombination and, at the time of the transaction,affects neither the accounting profit nor taxableprofit or loss; and

• in respect of taxable temporary differences as-sociated with investments in subsidiaries, asso-ciates and interests in joint ventures, where thetiming of the reversal of the temporary differen-ces can be controlled and it is probable that thetemporary differences will not reverse in the fo-reseeable future.

Deferred income tax assets are recognized for all de-ductible temporary differences, to the extent that itis probable that future taxable profit will allow thedeferred tax asset to be recovered.

The carrying amount of deferred income tax assetsis reviewed at each balance sheet date and reducedto the extent that it is no longer probable that suffi-cient taxable profit will be available to allow all or


part of the deferred income tax asset to be utilized.Unrecognized deferred income tax assets are reas-sessed at each balance sheet date and are recogni-zed to the extent that it has become probable thatfuture taxable profit will allow the deferred tax assetto be recovered.

Deferred income tax assets and liabilities are me-asured at the tax rates that are expected to applyto the year when the asset is realized or the liabi-lity is settled, based on tax rates (and tax laws)that have been enacted or substantively enactedat the balance sheet date.

Deferred tax assets and deferred tax liabilities areoffset, if a legally enforceable right exists to set offcurrent tax assets against current tax liabilities andthe deferred taxes relate to the same taxable entityand the same taxation authority.

p) Leases.The determination of whether an arrangement is, orcontains, a lease is based on the substance of thearrangement and requires an assessment of whe-ther the fulfillment of the arrangement is depen-dent on the use of a specific asset or assets and thearrangement conveys a right to use the asset.

Group as lessee.Finance leases, which transfer to the Group substan-tially all the risks and benefits incidental to owners-hip of the leased item, are capitalized at the incep-tion of the lease at the fair value of the leasedproperty or, if lower, at the present value of the mini-mum lease payments. Lease payments are apportio-ned between the finance charges and reduction ofthe lease liability so as to achieve a constant rate ofinterest on the remaining balance of the liability. Fi-nance charges are charged directly against income.

Capitalized leased assets are depreciated over theshorter of the estimated useful of the asset andthe lease term.

Operating lease payments are recognized as an ex-pense in the income statement on a straight-line ba-sis over the lease term.

The Group as lessor.Leases where the Group retains substantially allthe risks and benefits of ownership of the assetare classified as operating leases. Initial directcosts incurred in negotiating an operating leaseare added to the carrying amount of the leasedasset and recognized over the lease term on thesame bases as rental income.

q) Recognition of income and expenses.Revenues and expenses are recognized based onthe accrual basis.

Revenue is recognized to the extent that it is proba-ble that the economic benefits will flow to theGroup and the revenue can be reliably measured.The following specific recognition criteria must alsobe met before revenue is recognized:

Sale of assets.Revenue is reported when the significant risks andrewards associated with ownership of the assetshave passed to the buyer. In particular, sales ofproperties are recorded when their construction isfully completed, the title deed is duly signed, andthe keys are handed over. Advance payments re-ceived from customers in the period between thesignature of the private sale-purchase contractand the moment when the public deed is signedare recorded under “Advance payments receivedfrom customers” on the liabilities side of the con-solidated balance sheet.

Income from the sale of land and plots is recogni-zed when the private sale-purchase contract issigned for the part corresponding to the land. Forthe part corresponding to the development of theland, construction contract regulations apply (seesection below).


Construction contractsWhere the outcome of a construction contractcan be estimated reliably, revenue and costs arerecognized by reference to the stage of comple-tion of the contract activity at the balance sheetdate. This is normally measured by reference tothe proportion that contract costs incurred forwork performed to date bear to the estimated to-tal contract costs. Variations in contract work,claims and incentive payments are included tothe extent that they have been agreed with thecustomer.

Where the outcome of a construction contractcannot be estimated reliably, contract revenue isrecognized to the extent of contract costs incu-rred that are likely to be recoverable. Contractcosts are recognized as expenses in the period inwhich they are incurred.

When it is probable that total contract costs willexceed total contract revenue, the expected lossis recognized as an expense immediately.

Provision of services.Revenues for services rendered are recognized inthe income statement by reference to the per-centage-of-completion of the transaction at thebalance sheet date. The percentage of comple-tion is measured by reference to the proportionthat costs incurred to date bear to the estimatedtotal costs. Where the outcome of a contract can-not be estimated reliably, revenue is recognizedto the extent of contract costs incurred that arelikely to be recoverable.

Interest income.Revenue is recognized as interest accrues (using theeffective interest method that is the rate that exactlydiscounts estimated future cash receipts throughthe expected life of the financial instrument to thenet carrying amount of the financial asset).

Dividends.Revenue is recognized when the Group’s right toreceive the payment is established.

Rental income.Rental income arising on investment propertiesis accounted for on a straight line basis over thelease terms on ongoing leases.

Operating revenues do not include any incomeobtained by the Group when acts as agent orcommissioned on behalf of third parties. Opera-ting revenues only include those related to theown activity.

r) Foreign currency transactions.Each entity in the Group determines its own func-tional currency and items included in the finan-cial statements of each entity are measured usingthat functional currency. Transactions in foreigncurrencies of each consolidated company are in-itially recorded in the functional currency rate ru-ling at the date of the transaction. All differencesare taken to profit or loss.

s) Business activities with environmental im-pact.All activities carried out by the Group have beendesigned and performed to cause the least possi-ble environmental impact. Therefore no signifi-cant contingencies are expected in relation tothe protection and improvement of the environ-ment and consequently the Group does not con-sider it necessary to record a provision for envi-ronmental activities.

In relation to real estate development, the Grou-p’s core activity, all developments carried out bythe Group meet all the provisions of the Environ-mental Impact Statement as defined in the res-pective development projects and/or reports.


t) Acquisition of minority interestsThe Group records minority interest acquisitionsin companies that it controls at the carryingamount of its assets and liabilities at transactiondate. The resulting difference is recorded as go-odwill or accumulated gains.

2.5 • Adoption of IFRS during the year.

Changes in IFRS and IFRIC interpretations in 2006had no effect on the Group’s consolidated inco-me statements. Neither will changes in IFRS andIFRIC interpretations to come into effect as of Ja-nuary 1, 2007 have any effect on the Group’s con-solidated income statements, although they willrequire the following additional breakdowns:

• IFRS 7. Breakdowns of financial instrumentsand related risks.

• IAS 1. Modification of the presentation of fi-nancial statements with regard to the Group’sobjectives, policies and processes for mana-ging capital (interest rate, foreign currency,credit, and liquidity risk)


b) Exclusions from scope of consolidation.

c) Participation increases.

3 • SCOPE OF CONSOLIDATION

The Groups’ composition has been modified in 2006 and 2005, as a consequence of inclusions, exclusions,and increased interests in companies within the scope of consolidation.

a) Inclusions in the scope of consolidation.


d) Decreases due to divestments.

In these notes to the financial statements, information has been included in the tables affected by the changesto the scope of consolidation described above to show the effect of new companies entering the scope of con-solidation,and the increases and decreases in interests held in consolidated companies.Where the increases anddecreases in the course of the year involved significant amounts, these amounts are identified separately.

The companies included in the scope of consolidation at December 31, 2006 were as follows:

Subsidiaries:


Joint ventures:


(*) Assets under construction(**) Company audited by Ernst &Young

The participations in dormant associates shown inthe table above were acquired on the basis of the es-timated value of the real estate assets (land) theyown.This valuation is lower than the result of the va-luation performed by an independent expert at ye-ar end (CB Richard Ellis).

Subsidiaries excluded from the scope of consolidation:The following dormant subsidiaries companies wereexcluded from the scope of consolidation due totheir immateriality, individually or aggregated, interms of the fair presentation of Fadesa Group’s con-solidated financial statements.

Joint ventures:

Associates:

Subsidiaries:


The key financial figures of unconsolidated subsidiaries are set out below:

Business combinations for 2006.

The acquisitions shown in Note 3 are not consideredas business combinations due to the fact that eitherthey are acquisitions of assets intended for real esta-te development, or they correspond to companiesabroad acquired upon their initial incorporation.

In 2006 it was possible to determine the fair value ofthe assets, liabilities, and contingent liabilities of thebusiness combination completed in 2005 of theFrench group SA Financière Rive Gauche. The good-will initially recorded in 2005 was reassigned to “In-ventories” due to the fact that its fair value was hig-her than its carrying amount (Note 8).

Minority interest acquisitions in 2006.

During 2006, the Group acquired 30% of theFrench group SA Financière Rive Gauche, of whichit already controlled 70% of the share capital, gi-ving rise to goodwill of 6,061 thousand euros. Inthis same year it acquired 15% of Urbanización

Club de Campo de Logroño, S. L., of which it alre-ady controlled 85%, giving rise to goodwill of3,084 thousand euros (Note 8).

Business combinations for 2005.

Acquisition of Group SA Financière Rive Gauche.In June 2005, the Fadesa Group acquired a 70% sta-ke of voting shares in SA Financière Rive Gauche. Itsshares are not listed on the stock market and it is lo-cated in France. Its main activity is real estate deve-lopment.

The fair value of assets and liabilities of Group SA Fi-nancière Rive Gauche at acquisition date were:

4 • BUSINESS COMBINATIONS AND ACQUISITION OF MINORITY INTEREST.

Subsidiaries


The primary reporting format of the Group’s fi-nancial information is by business segments. Thesecondary format is by geographical segments.Operating businesses are organized and mana-ged separately according to the nature of the pro-ducts and services provided, and each segmentrepresents a strategic business unit offering diffe-rent products and servicing different markets.

The business segments are as follows:

a) Real estate: Includes the sale of housing, landand plots; provision of real estate services; andincome from the leasing of property. This busi-

ness is carried out mainly in Spain, Portugal, Mo-rocco, France, Poland and Hungary.

b) The hotel services segment includes: revenuefrom the operation of hotels. This business is ca-rried out in Spain and Morocco.

c) The industrial business segment includes: theproduction, transformation, and marketing ofconstruction sector products. These productionactivities are mainly carried out in Romania.

The total cost of the acquisition was 10,442 thou-sand euros, including related acquisition expenses.

Since its acquisition date, SA Financière Rive Gau-che has contributed -375 thousand euros to theGroup’s net profit. If the combination had occu-rred at the beginning of the year, Group sales

would have increased by 14,841 thousand eurosand consolidated profit would have fallen by 126thousand euros.

The difference between the fair value of the as-sets, liabilities, and contingent liabilities was pro-visionally assigned to goodwill.

5 • FINANCIAL INFORMATION BY SEGMENT

Thousand E


Transfer prices between segments are based onarms length basis. Segment revenue, segment ex-penses and segment results include transfers bet-ween business segments. These transfers are elimi-nated on consolidation.

The Group defines its geographical segments basedon the location of the real estate and hotel assets or,in the case of the industrial business segment, basedon the location of the customers.

Business segments.

The following tables provide information about re-venues and results, and some information about as-sets and liabilities, relating to the Group’s businesssegments for the years ended December 31, 2006and 2005.

Thousand E


The breakdown of revenues corresponding to the Group’s real estate activity, representing 93.7% (94.7% in2005) of total consolidated revenues in 2006, is as follows:

Other main segment information:Thousand E

Thousand E

Thousand E


Assets and liabilities of each business segment at December 31, 2006 and 2005 are as follows:

Thousand E


Geographical segment.The following tables show information relating to revenues and certain assets of the Group’s geographicalsegments for the years ended December 31, 2006 and 2005.

Year ended December 31, 2006

Thousand E

Thousand E


Year ended December 31, 2005

6 • PROPERTY, PLANT AND EQUIPMENT

Transfers in “Land and buildings” and “Machinery,plant and equipment” include the transfer of ahotel that was to be operated by the Group andwhich in 2006 the Group decided to sell it as

apartments on completion of the building phase.Also included are transfers to “Non-current assetsheld for sale” (see Note 17).

Thousand E

Thousand E

Thousand E


Accumulated provisions for impairment losses in2006 amounts to 23,562 thousand euros (27,165thousand euros in 2005) and represents the differen-ce between the carrying amount and the recoverableamount of certain items of property, plant and equip-ment belonging to the industrial business segment.

The recoverable amount has been determined basedon the recoverable value of the cash generating unitto which the asset belongs, by reviewing future ex-pected cash flows for the cash generating units of theindustrial segment, or by independent expert valua-tion of the cash generating unit of the hotel segment.

Land and buildings.

The detail of the various items included in pro-perty, plant and equipment is as follows, in thou-sands of euros:

Advances and work in progress.

The year end balance broken down by businesssegments is as follows:

Real estate investments in progress.

“Advances and work in progress” include inves-tments in progress which, upon completion, willform part of the Group’s real estate assets. The valueof these investments at December 31, 2006 is 20,102thousand euros (32,257 thousand euros in 2005).

Other information.

Interest for the year capitalized as an increase inthe value of property, plant and equipment in ac-cordance with the valuation rule set out in Note 2of this report amounted to 78 thousand euros(619 thousand euros in 2005).

The capitalization rate is based on the averagecost of debt (Note 20).

Group assets subject to mortgage amounted to133,651 thousand euros at December 31, 2006(136,728 thousand euros in 2005).

The cost of fully depreciated assets in use is 13,611thousand euros, of which 3,540 thousand euros co-rresponds to manufacturing assets. (9,572 and3,253 thousand euros respectively in 2005).

The carrying amount of temporarily idle fully de-preciated tangible fixed assets amounts to 5,868thousand euros (9,589 thousand euros in 2005).

Investment in tangible fixed assets located outsi-de Spain mostly corresponds to the Group’s ma-nufacturing business, and are as follows:

Thousand E

Thousand E


The policy of the Fadesa Group is to insure its fi-xed assets against any risks they may be exposedto. At December 31, 2005 there was no insurancecoverage shortfall with regard to the carryingamount of fixed assets.

7 • INVESTMENT PROPERTIES

The current year movements of this heading of the consolidated balance sheet are as follows:

Real estate investments are recorded at fair value,based on valuations made by CB Richard Ellis at De-cember 31, 2006 and December 31, 2005. CB RichardEllis are specialists in appraising this type of proper-ties. Fair value is the amount at which an asset could

be exchanged in a current transaction between wi-lling independent parties, in an arm’s length transac-tion, in accordance with International ValuationStandards. Leased Group properties at year end2006 are as follows:

Thousand E

Thousand E

Thousand E


The balance recorded at December 31, 2006 corres-ponds to the acquisition of minority interests repre-senting 30% of Financière Rive Gauche, S.A.’s sharecapital (6,061 thousand euros) and 15% of U.C.C. Lo-groño (3,184 thousand euros).These amounts repre-sent the difference between the carrying amount ofthe assets, liabilities, and contingent liabilities of the-se companies and the acquisition amount.

During 2006, goodwill amounting to 10,480 thou-sand euros arising in 2005 from the acquisition of70% of Financière Rive Gauche, S. A. was definitivelyassigned to specific assets. See Note 4.

9 • INTANGIBLE ASSETS

Movements of “Intangible assets” during 2006 and 2005 were as follows:

8 • GOODWILL

Thousand E

Thousand E


Fully depreciated assets still in use at December 31,2006 amount to 629 thousand euros (642 thousand eu-ros in 2005).

Administrative temporary concessions are amortizedusing the straight-line method throughout the conces-sion period (18 years). The cost to be amortizedamounts to 2,254 thousand euros in 2006 and 2005.

10 • NON-CURRENT FINANCIAL ASSETS

The breakdown of this heading is as follows:

Investment in unlisted

The detail of investment in unlisted companies atDecember 31, 2005 is as follows:

Thousand E

Thousand E

Thousand E


As indicated in Note 1.2,within the framework of the ta-keover bid for Fadesa Inmobiliaria, S.A.by Promocionesy Urbanizaciones Martín, S. A and Huson Big, S. L., theBidders and the President of Fadesa Inmobiliaria, S. A.,Mr. Manuel Jove Capellán, reached an agreement whe-reby the latter would acquire the shares of Parque Te-mático de Madrid,S.A..As this investment was recorded

at a net value of nil as a result of the impairment testperformed in previous years, the same value will bemaintained until the transaction actually takes place.The shares of Parque Temático de Madrid. S.A. are pled-ged as collateral for a loan the company has with CajaMadrid. The detail of investment in unquoted compa-nies at December 31, 2006 is as follows:

Investment in associates accounted for under the equity method as disclosed in Note 3.The movements re-corded in this chapter in the years 2006 and 2005 were as follows:

11 • EQUITY METHOD INVESTMENTS

In 2006,on the basis of agreements reached between the parties involved in the acquisition of an interest in Casa-sola Explotaciones Agropecuarias,S.A.,the acquisition price of that interest was reduced to 19,766 thousand euros.

Thousand E

Thousand E

Thousand E


At December 31, 2005 the balance of subsidiaries accounted for under the equity method was as follows:

December 31, 2006

12 • INVENTORIES

The detail of inventories at December 31, 2006and 2005, broken down by activity, is as follows:

Key figures of subsidiaries accounted for under the equity method in 2006 are as follows:Thousand E

Thousand E

Thousand E

Thousand E

a) Inventory of real estate activity


December 31, 2005

Inventory held that is expected to be realized in morethan twelve months from balance sheet date is as follows:

• LAND AND PLOTS: Turnover is expected within theGroup’s business cycle which is from one to fiveyears depending on land commercialization po-licies, the degree of urban development, and thebuilding time required.

• SHORT-CYCLE DEVELOPMENTS UNDER CONSTRUCTION:Turnover expected in less than 12 months.

• LONG-CYCLE DEVELOPMENTS UNDER CONSTRUCTION:Turnover expected in 12 to 36 months.

• WORK IN PROGRESS: Turnover expected in lessthan 12 months.

• CONSTRUCTED BUILDINGS: Turnover mostly ex-pected in less than 12 months from balancesheet date.

Thousand E

Thousand E

Thousand EDecember 31, 2005

December 31, 2006

b) Hotel and industrial activities


Real estate inventories at year end include capi-talized borrowing costs of 66,200 thousand euros(39,084 in 2005), of which 41,034 thousand euroswere capitalized in 2006 (20,340 thousand eurosin 2005).

Financial expenses are capitalized in 2006 at thesame rate as the related debt (see Note 20)

Of the balance recorded in “Inventories” for deve-lopments in progress and completed buildings,totaling 1,458,206 thousand euros, 711,844 thou-sand euros are subject to mortgages (579,370thousand euros in 2005).

At year end 2006, Group companies have a num-ber of call option contracts amounting to 355,615thousand euros (157,843 thousand euros in 2005)on land intended for real estate developmentshould the option be exercised. Of the abovemen-tioned amount, 1,930 thousand euros (13,153thousand euros in 2005) corresponds to the costof the option and is recorded as advance pay-ments in “Trade and other accounts receivable”.The acquisition cost of the land, should the rele-vant options be exercised, comprises a present va-lue amounting to 225,612 thousand euros(144,693 thousand euros in 2005) and an estima-ted value that will depend on the final develop-ment approved for the land amounting to 130,003thousand euros (13,153 thousand euros in 2005).

13 • TRADE AND OTHER ACCOUNTS RECEIVABLES

The breakdown of these items on the consolidated balance sheet at December 31, 2006 and 2005 is shownin the following table:

A provision for bad debts was made for those custo-mers whose financial position showed evidence ofimpairment at year end.

Customer accounts receivable are recognized at fairvalue, whereby their nominal value is discounted ata rate equivalent to the market interest rate. As aconsequence, the nominal value of customer ac-counts receivable has been reduced by 6,436 thou-sand euros (6,104 thousand euros in 2005).

Trade and other receivable balances whose realiza-tion period is deemed to be higher than twelvemonths from balance sheet date are as follows:

Thousand E

Thousand E


14 • OTHER CURRENT FINANCIAL ASSETS

The breakdown of this heading of the consolidated balance sheet is as follows:

“Other loans” includes, among others, the following items:

• Loans to companies consolidated by the equity method amounting to 5,100 thousand euros.• Participations in FIM’s (Security Investment Funds) amounting to 2,017 thousand euros.• Short-term deposits amounting to 1,400 thousand euros.

15 • OTHER CURRENT ASSETS

The breakdown of the heading “Other current assets” on the consolidated balance sheet at December 31,2006 and 2005 is included in the following table:

The balance of “Public administrations” for 2006 includes, among others, the following items:

• VAT to be offset by foreign companies amounting to 37,206 thousand euros.• VAT to be refunded amounting to 23,947 thousand euros.• IGIC (Special Canary Islands tax) to be refunded amounting to 2,884 thousand euros.


16 • CASH AND CASH EQUIVALENTS

The breakdown of this heading of the consolidated balance sheet is as follows:

Cash in banks accrue a variable interest rate basedon the daily interest rate for bank deposits. The ma-turity of short-term deposits ranges from one day tothree months depending on the Group’s immediateliquidity requirements; deposits accrue interest ac-cording to the prevailing rate. The fair value of cashand cash equivalents is a reasonable approximationof its carrying amount.

17 • NON-CURRENT ASSETS HELD FOR SALE

As indicated in Note 1.2, within the framework of the takeover bid for Fadesa Inmobiliaria, S. A. by Promocio-nes y Urbanizaciones Martín, S. A and Huson Big, S. L., the Bidders and the President of Fadesa Inmobiliaria,S. A., Mr. Manuel Jove Capellán reached an agreement regarding the latter’s acquisition of a number of non-current assets. These assets are recorded as “Non-current assets held for sale” at a net carrying value that, atDecember 31, 2006, amounted to 13,322 thousand euros.

The composition and movements of net equity ofthe Group is shown in the “Statement of changes innet equity”, which forms part of the consolidated fi-nancial statements.

Equity.

Share capital at December 31, 2006 is representedby 113,312,799 fully subscribed and paid-up sha-res with a par value of 0.10 each, represented bybook entries. These shares have been trading onthe Madrid and Barcelona stock exchanges on thecontinuous market since April 30, 2004. All shareshave equal rights and are freely negotiable.

On May 9, 2006 the Ordinary and Extraordinary Ge-neral Meeting of Fadesa Inmobiliaria, S.A. agreed toa capital increase through the issue of commonstock with a par value of 0.10 euros a share, of the sa-me class and series as existing shares, and represen-ted by book entries. The number of shares issuedwas the result of dividing 39.108.853,31 euros (equi-valent to 85% of the gross dividend amount) by theissue price.The issue price was determined by avera-ging the weighted average changes of the Compan-y’s share on the continuous market (SIBE) for the fivetrading days immediately prior to the dividend pay-ment date (May 31, 2006) and applying a 1% dis-count.The difference between the abovementionedissue price and the par value of the share representsan issue premium of 26.75 euros per share.

18 • SHARE CAPITAL AND RESERVES

Thousand E


The approved capital increase described in theabove paragraph was under-subscribed and con-sequently the share capital was increased by theamount of the subscribed shares (109,227.30 eu-ros). A total of 1,092,273 fully paid-up commonshares were issued at a par value of 0.10 euros ashare. The corresponding issue premium was29,218,302.75 euros.

The weighted average number of shares during2006 was 112,857,685 (111,854,503 in 2005).

In their ordinary and extraordinary general mee-ting held on May 6, 2005, the shareholders ofFadesa Inmobiliaria, S.A. resolved to increase sharecapital through the issue of ordinary shares with anominal value of 10 euros cents each of the sametype and series as the existing shares.The new sha-res are recorded using the Bank of Spain’s bookentry system. The number of shares to be issuedwould be the result of dividing 25,558,513 euros(an amount equal to 85% of total gross dividendsdistributed) by the rate of issue per share. The rateof issue is determined as the simple average of theweighted average changes in the Company’s shareon the SIBE market (Spanish Stock Market Inter-connection System) for the last five days immedia-tely prior to the dividend payment date (May 27,2005), with a 1% discount, establishing a share pre-mium for the difference between the aforementio-ned rate of issue and the nominal value of the sha-re equivalent to 19.53 euros per share.

The capital increased as described above was notfully subscribed and therefore capital was increa-sed by the amount of the shares actually subscri-bed (85,445.60 euros), issuing 854,456 ordinary,paid-in shares with a nominal value of 10 eurocents each.

Share premium.

Spanish Commercial Law specifically allows com-panies to use the balance of this account to incre-ase share capital. There are no specific restric-tions on the disposition of that balance.

Legal reserve.

According to Spanish Corporate Law, companiesmust transfer 10% of profits for the year to a legal re-serve until this reserve is at least 20% of capital. Atyear end, the Company is compliant with this requi-rement.

Legal reserves can be used to increase capital bythe amount exceeding 10% of the new capital af-ter the increase. With the exception already men-tioned and as far as the reserve does not exceed20% of the share capital, this reserve can only beused to compensate losses only if there is noother reserves available.

Other non-distributable reserves.

The balance corresponds to the “Canary Island in-vestment reserve”. The Group’s companies availedthemselves of the tax benefits offered under Law19/94 relating to amounts allocated to provisions forinvestments in the Canary Islands. The companiesrecorded a reserve of 20,493 thousand euros (18,483thousand euros in 2005) which is non-distributableuntil reinvestment takes place.

Translation differences.

This reserve relates to the cumulative translation dif-ference for the conversion of financial statementsdenominated in foreign currencies not arising fromParent Company transactions.


The detail of conversion differences by company atDecember 31, 2006 and 2005 is as follows:

Own shares.

To enhance the liquidity of Fadesa Inmobiliaria, S.A.’sshares at certain times, the General Meeting of Sha-reholders of May 9, 2006 approved the acquisitionduring 2006 of 2,767,784 own shares worth 74,568thousand euros, at an average price of 26.94 eurosper share, and the sale of 3,229,516 shares for 92,466thousand euros, at an average price of 28.63 per sha-re, generating gains of 4,969 thousand euros overthe cost of acquisition.

Similarly, to enhance the liquidity of Fadesa Inmobi-liaria, S.A.’s shares at certain times, the General Mee-ting of Shareholders of May 6, 2005 approved the ac-quisition during 2005 of 1,368,696 own shares worth38,075 thousand euros at an average price of 27.82euros per share, and the sale of 906,964 shares for25,645 thousand euros at an average price of 28.28euros per share, generating gains of 499 thousandeuros over the cost of acquisition.

The following table summarizes the abovementio-ned transactions for 2006:

The following table summarizes the abovementio-ned transactions for 2005:

Revaluation reserve.

The revaluation reserve corresponds to investmentproperties valued at fair value from the transition da-te. Movements produced in years 2006 and 2005 re-late to the changes in the fair value of each year.

Other information.

Due to the nature of its shares, the Parent is onlyaware of the percentage interests held by personswho report them to the Comisión Nacional del Mer-cado de Valores (National Stock Market Commis-sion). At the date of preparation of these financialstatements, the only entities holding equity interestsof 10% or more that have notified the CNMV are In-versiones Frieira, S.L. and Frieira Gestión de Inversio-nes S.L., and IAGA Gestión de Inversiones, S.L. with di-rect interests of 23.36 %, 10.09 % and 21.16%respectively. At the same date and according to the

Thousand E

Thousand E

Thousand E


same source, Parent board members hold direct andindirect interests amounting to 58.175 % of thecompany’s share capital.

At December 31, 2006 the following non-Groupcompanies hold equity interests of more than 10%in Group or Multi-Group companies:

None of the subsidiaries shares are listed in the stock market.


19.- DEFERRED INCOMEThe detail and movements of this heading of the consolidated balance sheet are as follows:

Minority interest net equity.

Changes in the net equity of minority interests during 2006 and 2005 are as follows:Thousand E

Thousand E

Thousand E


Official grants.This heading includes grants received to acquire land tobuild government-subsidized housing for rent or sale.

Group companies have met all the requirements es-tablished for administrative grants.

20 • INTEREST-BEARING LOANS AND BORROWINGSAs described in Note 2.1, the Group classifies as current liabilities all debt associated with the real estate bu-siness regardless of the due dates specified in the respective contracts, and classifies other debt with a ma-turity of over one year from balance sheet date as non-current financial debt.

Accordingly, classification of debts is as follows:

Classification of real estate activity debt is as follows:

Thousand E

Thousand E

Thousand E2006


Assumed mortgage loans.

This heading includes amounts drawn down frommortgage loans with a number of financial insti-tutions for mortgages which can be assumed bythe buyer when the home is delivered, and whichthe Group Companies use to finance real estatedevelopments in progress. These loans are secu-red by mortgages on existing inventory and atyear ended December 31, 2006 they amount to928,079 thousand euros (824,456 in 2005), corres-ponding to the drawn down portion of mortga-ges totaling 535,721 thousand euros (481,027thousand euros in 2005).

Financial expenses relating to “Assumable mort-gage loans” incurred this year amount to 18,099thousand euros of which 819 thousand euros(700 thousand euros in 2005) correspond to sub-sidized housing and 17,280 thousand euros(11,565 thousand euros in 2005) to private sectorhousing developments.

While most assumable mortgage loans are notpayable in less than twelve months, since they ha-ve maturities of over one year (as detailed in thematurity schedule for non-current debt), GroupCompanies classify as current debt all amountscorresponding to the financing of properties thatmeet the following conditions:

1) That at December 31, 2006 there is a firmcommitment to sell; that is, that a private sale-purchase contract has been entered into withrespect of the mortgaged assets

2) The estimated delivery date (public deed)is less than twelve months from the year-endclosing date.

Loans and credit facilities for financing land.

This heading corresponds to amounts drawndown from loans and credit facilities arrangedwith various financial institutions that are to beextended and converted into assumable mortga-ge loans, which can be assumed by the buyerwhen the sale becomes effective. Most of theseloans and credit facilities mature in under a year,although due to their convertibility to assumablemortgage loans they will become loans with amaturity of at least 20 years.

Group Companies have credit facilities amoun-ting to 953,530 thousand euros (592,599 thou-sand euros in 2005), of which 880,749 thousandeuros (486,607 thousand euros in 2005) aredrawn down.

Discounted bills payable.

At December 31, 2006, Group Companies had dis-count facilities with several financial institutionsfor various amounts. The total amount of discoun-ted notes at balance sheet date 2006 is 77,884thousand euros (107,851 thousand euros in 2005).

The amount of discounted notes as a result of re-al estate development business in the year tota-led approximately 148,326 thousand euros(182,798 thousand euros in 2005).

Thousand E2005


Maturity of debt payable to creditinstitutions.

Amortizations of assumable mortgage loans arethose corresponding to the amortization schedu-

les for loans arranged when there are no priormortgage assumptions. The accounting classifi-cations described in the previous section on as-sumable mortgage loans do not therefore apply.The breakdown by maturities is as follows:

The average interest rate for long-term debt in 2006 ranges from 3.53% to 3.83% (2.6% - 3.6% in 2005)

21 • PROVISIONSNon-current provisions.

The detail and movements of this heading of the consolidated balance sheet is as follows:

Thousand E

Thousand E

Thousand E

Thousand E


The following are included under the heading “Non-current provisions”:

Provisions for commitments to staffAs a result of their respective collective labor agree-ments,some Group Companies are committed to provi-ding retirement awards to employees who, upon rea-ching retirement age,meet certain conditions regardingthe number of years worked in the company. To meetthese commitments, the Group Companies affected ha-ve made a provision based on actuarial studies.

Provisions for taxesThe Group has a provision amounting to 5,922 thousand eu-ros (4,481 thousand euros in 2005) for Tax on Capital Transfersand Documented Legal Acts that applies to mortgage loans.

In addition to the abovementioned provision, theGroup has a provision of 9,031 thousand euros (7,808 in2005) for other tax contingencies.

It is not possible to determine when these provisions willaccrue although it is expected to be more than 5 years.

Provisions for other litigationCorresponds to future risks and expenses that could ari-se from litigations in progress. In 2006 Group Compa-nies made provisions amounting to 2,785 thousand eu-ros (2,165 thousand euros in 2005) see Note 25.

It is not possible to determine when these provi-sions will accrue although it is expected to be morethan 3 years.

Current provisions.


Provisions for warranty claims.A provision is recognized for expected warrantyclaims on products sold during the last two years,according to the Directors’ best estimate of thefuture outcome for the Group. The cost is calcula-

ted as a percentage of current and previous yearsales based on statistical data.

The risk is expected to materialize or not within a pe-riod of two years following the balance sheet date.

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Provisions for outstanding costsThis refers to outstanding costs from propertiesfor which a sale has been recorded. Generally, fordelivered homes, this includes building costs,normally outstanding costs of real estate deve-lopments and general infrastructures in majorhousing developments. In addition, for land and

plots sold, this heading includes any outstandinggeneral expenses, such as financing interest,commercial and general expenses.

These expenses are expected to be incurred wi-thin a period of two years following the balancesheet date.

22 • OTHER NON-CURRENT LIABILITIES


The balance of “Bills of exchange payable” mostlycorresponds to debt arising from the acquisitionof shares in companies accounted for by theequity method.

The balance of “Other payables” corresponds toloans granted by minority shareholders to a sub-sidiary.

23 • TRADE AND OTHER PAYABLES


As described in Note 2.1., the Group classifies all re-al estate segment related debts as current liabilities.Recorded in “Trade and other payables” are debtsarising from the acquisition of land for developmenttotaling 688,643 thousand euros (631,110 thousandeuros in 2005) that do not bear interest. The matu-rity date of 528,013 thousand euros (400,735 thou-sand euros in 2005) of that debt depends on mee-ting certain development milestones.

The maturity, actual or estimated, of debt arisingfrom the purchase of land is as follows, brokendown by year:

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24 • OTHER CURRENT LIABILITIES


Trade payables do not bear interest and, in gene-ral terms, mature between 90 and 180 days. Otherdebts do not bear interest and mature in 60 dayson average.

“Payables for purchases and services” includes40,453 thousand euros corresponding to fees forintermediary services related to the takeover bid,as indicated in Note 1.2.

The balance of “Public administrations” includes,among others, the following items:

• VAT payable amounting to 19,189 thousandeuros.• Withholdings on employee salaries and profes-sional fees totaling 3,393 thousand euros.• Social security amounting to 3,058 thousandeuros.• Local taxes totaling 4,850 thousand euros.

In addition to provisions for accrued salaries unpaidat year end, the balance of “Outstanding remunera-tions” at December 31, 2006 includes extraordinaryremunerations amounting to 46,154 thousand eu-ros, as indicated in Note 1.2.

25 • COMMITMENTS AND CONTINGENCIES

Finance lease and hire purchase commitments.

The Group has finance lease and hire purchase contracts on transport equipment assets and machinery.Thecontracts include renewal options, but not call options or acceleration clauses. Renewal options are exerci-sable at the option of the specific lessee. Future minimum payments relating to finance lease and hire pur-chase, together with the present value of minimum net payments, are as follows:

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Litigation.

At the date of preparation of these consolidatedfinancial statements, Group Companies are invol-ved in the following litigation:

Tax related litigationIn 2003, the Oficina Nacional de Inspección (Natio-nal Inspection Office) of the AEAT (Spanish Tax Au-thorities) completed its inspection and investiga-tion activities relating to the periods 1996 to 1998for Corporate Income Tax and 1997 and 1998 forVAT and Personal Income Tax withholdings. Thistax audit also affects the 1997 and 1998 accountsof Grupo Empresarial Fadesa, S.A., a company ab-sorbed by the Parent Company in 1999.

Tax assessments amounting to 783 thousand eu-ros were accepted. The part that was signed un-

der protest amounts to 4,799 thousand eurosplus a rebate of 206 thousand euros, correspon-ding to a Corporate Income Tax related debt thatis mainly due to discrepancies regarding costallocation criteria.

A provision for all tax liabilities arising from dis-puted tax assessments, including their corres-ponding penalties, was made in the accompan-ying consolidated income statements, as detailedin Note 21 “Provisions”, after having taken into ac-count any recoverable amounts from years notaffected by the statute of limitations.

Other litigations• There are ten civil actions against FADESAdue to construction defects, brought by va-rious home owner associations in Malaga, LasPalmas de Gran Canaria, Sabadell, Madrid, Ovie-

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do and A Coruña for construction defects forover 500 thousand euros each. Taking into ac-count the expert reports commissioned byFADESA and prepared by independent techni-cians who visited the buildings, and after com-paring them with the expert reports submittedwith the claims, and taking into considerationall the evidence and therefore the outcomethat can reasonably be expected, the real costof repairs and compensation that FADESA willhave to incur should be significantly lower thanthe amounts claimed by the plaintiffs.

• In the civil proceedings brought by severalcompanies belonging to the Cenavi groupagainst Fadesa Inmobiliaria, S. A. with regard tothe sale-purchase agreement in respect of landowned by Fadesa Inmobiliaria, S. A. in SantaCruz de Bezana, the First Instance Court of San-tander ruled in favor of the Cenavi Group.Fadesa Inmobiliaria, S. A. appealed against thisruling and the case is still pending.

• The Department of Employment and SocialAffairs of the Canary Islands initiated four sanc-tion proceedings against FADESA as a contrac-ting company. They allege a breach of the pro-hibition of agreements with subcontractorsintended to evade legal responsibilities of thecontractor, in respect of a clause in a number ofcontracts that authorize FADESA to withholdamounts owing to the subcontractor if the sub-contractor has acted in joint responsibility ma-king payments arising from events caused bythe subcontractor. The total sum of these fines,currently being appealed by FADESA beforethe administrative court, would be a maximumof 700 thousand euros. However, in the opinionof FADESA’s legal advisors, these allegations arelargely unfounded.

• A former executive of FADESA who left thecompany voluntarily in 2000 brought a labor

lawsuit against the company demanding thathis call option rights over 169,054 companyshares, at a price of 2.2 euros per share, be re-cognized, or an equivalent compensation bepaid based on the share’s current vale. The La-bor Court of A Coruña ruled against the plain-tiff who has filed an appeal in the High Courtof Justice of Galicia.

• In response to a suit brought by FADESA be-fore the Civil Court of Lisbon in relation to thetermination of a contract to purchase a site inLisbon and FADESA’s subsequent claim for da-mages (for a total of 11,800 thousand euros),the Portuguese entity ONLYPROPERTIES fileda counterclaim for 1,200 thousand euros foreconomic damages caused by the executionof a bank guarantee by FADESA for thatamount, plus 1,000 thousand euros for alle-ged non-economic damages. While a ruling infavor of ONLYPROPERTIES cannot be ruledout, FADESA’s legal advisors are of the opinionthat the initial action is more viable, and thattherefore the counterclaim by ONLYPROPER-TIES will be rejected. At present the civil pro-ceeding is suspended at the request of thetwo parties, in order to reach a transactionalagreement that will not result in any loss toFadesa Inmobiliaria, S. A.’s equity.

• In 1995 the bankruptcy trustee of Julián Or-tega S.A. brought an action against FADESA,claiming the amount of a payment fromFADESA that was declared null and void as aresult of having been made during the retro-action period. After the Provincial Court of ACoruña ruled that FADESA was obliged to ma-ke the payment, FADESA appealed to the Su-preme Court where the case is now pending.The maximum liability arising from this law-suit is a little over 1,3 million euros, plus legalinterests.


• A lawsuit has been filed against Fadesa In-mobiliaria, S.A. by a construction company inCantabria (Cenavi) claiming 6.8 million eurosfor damages for an alleged breach of agree-ment by Fadesa Inmobiliaria, S. A. related topreparatory agreements reached regardingthe award to Cenavi of building works in Pié-lagos. In response to the claim, Fadesa Inmobi-liaria, S. A. will argue that the rescission of theagreements was legitimate and therefore theCompany is not liable for damages. Withoutprejudice to the above, in the event of a hypo-thetical adverse ruling, in the opinion FadesaInmobiliaria, S. A.’s legal and technical advi-sors, the amount of compensation would besignificantly less than the sum being claimedby the plaintiff company.

• With regard to the development at Miño (ACoruña High Court of Justice of Galicia decla-red null and void the agreement made by theMiño Town Council on 10 de mayo de 2002 re-garding the choice of the method of action(expropriation). Fadesa Inmobiliaria, S. A. ap-pealed against this ruling before Higher Courtof Justice, which is currently in process, and afavorable outcome cannot be ruled out. If theappeal were to be denied, this could lead to aprocedural situation whereby Fadesa Inmobi-liaria, S. A. would be obliged to provide com-pensation in an amount that should not exce-ed 25% of the value of the expropriations.

Fadesa Inmobiliaria, S.A.’s directors consider thatthe provisions for litigation risk and other risksdescribed in this note are adequate, and they donot expect any additional liabilities to arise inthis respect other than those recorded.

Guarantees.

As a result of the sale contract of Escayolas Alba,S.L., the Group undertook to assume a number ofliabilities in the event that the La Rioja govern-ment were to demand the return of subsidiesworth 800 thousand euros. The Group’s directorsconsider that, according to information availableat the date of preparation of these financial state-ments, this scenario is possible but not probable.

Other commitments.

Group companies hold sale contracts worth2,333 million euros (2,053 million euros in 2005)relating to developments in progress.

26 • INCOME TAX

26.1 • Consolidated income tax group

As the parent company of a group of companies, since January 1, 1999 Fadesa Inmobiliaria, S.A. has filedincome tax under a consolidated tax scheme with group companies and is responsible for paying incometax for the group companies.


The following are the companies, which are included under the scope of consolidation in these annual ac-counts and comprise the consolidated tax group:

Fadesa Inmobiliaria, S.A. as parent company and the following subsidiaries companies:

The remaining Group Companies each file indivi-dual income tax returns, in accordance with local taxrules applicable in each country.

26.2 •Years open for review by the taxinspection authorities.

The accounts of Group Companies included in theconsolidated income tax return may be inspectedby the tax authorities with regard to all applicabletaxes in the last four fiscal years, as well as 2000.No additional material liabilities are expected tobe incurred by the Company as a result of any pos-sible inspection.

26.3 • Reconciliation of accounting and taxincome.

Set forth below is the reconciliation of the incometax resulting from the application of the standardtax rate in force in Spain to the profit before inco-me tax expense recognized in the consolidated in-come statement for the years ended December31, 2006 and 2005.


The Group intends to apply 2,428 thousand eurosin deductions for reinvestment of extraordinaryprofit from capital gains obtained in 2006 on its2006 income tax return. The income to which thedeductions were applied amounted to 12,136thousand euros and the relevant amounts werereinvested in 2006. In addition, some subsidiariesare entitled to tax rebates of 5,997 thousand eu-ros due to existing agreements with governmen-tal institutions.

In accordance with prevailing tax legislation, theincome to which the deductions for reinvestmentwere applied amounted to 603 thousand euros in2002, 34,538 thousand euros in 2003, 9,470 thou-sand euros 2004 and 12,136 thousand euros in2005; the related deductions amounted to102,545 thousand euros, 6,907 thousand euros,894 thousand euros and 411thousand euros, res-

pectively. These amounts were reinvested ineach of the aforementioned years.

In the tax settlement for 2006, the Companyplans to avail itself of Law 19/1994 (on theamendment of the Fiscal and Economic Regimeof the Canary Islands) in respect of an allocationto the “Reserve for investments in the Canary Is-lands” amounting to 170 thousand euros. TheCompany has up to December 31, 2010 to meetits reinvestment obligations in connection withthe allocations made to this reserve. Reinves-tment deadlines at December 31, 2006 have beenfully met at that date.

In 2006, Group companies adjusted deferred taxbalances to reflect the new rates in force as fromJanuary 1, 2007. An additional expense of 1,439thousand euros was recorded.

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26.4 • Deferred taxes.

The origins of deferred taxes recorded for 2006 and2005 are as following:

26.5 • Other information.

Individually a number of Group Companies have taxloss carryforwards amounting to 58,574 thousandeuros (62,376 thousand euros in 2005) to offsetagainst future taxable income of the companies thatreported losses in accordance with the statute of li-mitations set out below. No deferred tax asset rela-ting to those losses has been recognized, since thesetax losses cannot be offset against future taxable in-come of other Group Companies, and were genera-ted by subsidiaries with recurring losses.

Tax losses available for offset against future taxableincome:

At December 31, 2006, no deferred income tax liabi-lities were recognized (2005: nil) for taxes to be paidon accumulated earnings from certain subsidiary orassociated companies, or joint ventures, since:

1. The Group has decided that the undistributedincome of its subsidiaries will not be distributedin the foreseeable future2. The Group has an agreement with its associatedand subsidiary companies and joint ventures thattheir profits will not be distributed without theFadesa Group’s prior consent. At balance sheet da-te, the Parent does not foresee giving such consent3. Joint ventures cannot distribute their profitswithout the Fadesa Group’s prior consent. At ba-lance sheet date, the Parent does not foresee gi-ving such consent.

The undistributed income of the subsidiaries in 2005amount to 49,936 thousand euros (17,566 thousandeuros in 2005).

27 • REVENUES AND EXPENSES

27.1 • Cost of sales and other operatingexpenses.

The breakdown of “Cost of sales and other operatingexpenses” by type is as follows: (Expense is shown aspositive and income as negative).

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The most significant items included in “Non-recurring expenses” are as follows:

Personnel expenses.

The average number of employees of the Group by professional categories is as follows:

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27.2 • Changes in trade provisions.

Movements of “Changes in trade provisions” are asfollows (income is shown in brackets):

Changes in trade provisions.Movements of “Changes in trade provisions” areas follows:

Changes in provisions for property, plant andequipmentIn 2006 provisions were made for property, plant andequipment of the hotel segment amounting to 2,164thousand euros. In the same year, provisions were ma-de for property, plant and equipment of the industrialsegment amounting to 7,736 thousand euros.

27.3 • Financial income and expenses.

The detail of this heading is as follows:

28 • RELATED PARTY DISCLOSURES

The consolidated financial statements include the annual accounts of Fadesa Inmobiliaria, S.A. and ofits subsidiary companies mentioned in Note 3. Transactions between the Parent and its subsidiaries,which are related parties, carried out in the Company’s ordinary course of business, have been elimi-nated in the consolidation process.

In addition to the abovementioned, related parties include:

• Significant shareholders:• Associated and joint venture companies• Board members and senior executives

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Significant shareholders.

As Fadesa Inmobiliaria, S.A. shares are representedby book entries and therefore no register of share-holders is maintained, it is impossible to know theCompany’s exact shareholder structure. The Com-pany is unaware of the existence of shareholderswith significant shareholdings who are not boardmembers (including any indirect interest).

Fadesa Inmobiliaria, S.A. is a subsidiary company ofIAGA Gestión de Inversiones, S.L., which holds a totalinterest of 54.61% (21.16% direct interest; 33.45% in-direct interest) as indicated in the following chart:

Finca del Noroeste, S. L. is another significant share-holder which, due to its particular circumstances, no-tified the CNMV of its 2.97% interest.

The following chart shows the total amount of trans-actions carried out under market conditions betwe-en significant shareholders or companies of theirrespective Groups and Group Companies during2006 and 2005.

Significant transactions with major shareholdersin 2006 correspond to the acquisition of 2 parkingspaces in the Conde de Fenosa Building in theamount of 45 thousand euros.

As indicated in Note 1.2, within the framework ofthe takeover bid for Fadesa Inmobiliaria, S. A. byPromociones y Urbanizaciones Martín, S. A andHuson Big, S. L., the companies Iaga Gestión de In-versiones, S.L., Frieira Gestión de Inversiones, S.L.and Inversiones Frieira, S.L., all controlled by thecurrent president of Fadesa Inmobiliaria, S.A., ha-ve given an irrevocable undertaking to accept theBid during the first five days of the acceptanceperiod. The total number of Fadesa shares invol-ved is 61,884,891 shares, representing 54.614% ofthe Company’s share capital. At the date of prepa-ring these consolidated financial statements, theabovementioned acceptance of the bid has alre-ady taken place.

Also, as part of the agreements reached prior to thepresentation of the takeover bid, on September 28an “Asset transfer agreement” was signed, whereby:

a) Fadesa Inmobiliaria, S.A. will acquire land inMexico from a company related to Mr. ManuelJove Capellán at a price of 118,600 thousandeuros. This acquisition will take effect once thetakeover is completed.b) Fadesa Inmobiliaria, S.A. will sell certain as-sets to entities related to Mr. Manuel Jove Ca-pellán at a price of 20,177 thousand euros.

Additionally, within the framework of the takeo-ver bid, the president of Fadesa Inmobiliaria, S.A.undertook to acquire the shares of Parque Temá-tico de Madrid, S. A. currently held by the parentCompany, as indicated in Note 1.2.

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Associated companies and joint ventures.

Associates companies and joint ventures are de-tailed in Note 3 of the consolidated financial sta-tements. During 2006 no transactions were ca-rried out with these companies (60,450 thousandeuros for purchase of land in 2005).

Board of Directors and Senior management

In 2006, neither Board Members nor other seniormanagement members of Fadesa Inmobiliaria,S.A., nor any shareholders represented on the Bo-ard of Directors, carried out significant transac-tions with Group Companies.

Remunerations and other considerations receivedby the Board of Directors members during the2006 amount to 3,677 thousand euros (3,846 in2005), of which 2,952 thousand euros correspondto Directors’ fees (2,948 in 2005) and 725 thousand(898 in 2005) de euros correspond to salaries.

Board Members do not receive any other benefitssuch as loans, pension plans, life insurance poli-cies, or the like.

Board Members do not receive any other remune-ration or consideration, neither do they sit on anyother boards of directors of other Group Compa-nies. A list of positions held by Board Members inother Group Companies is to be found in the An-nual Corporate Governance Report.

Significant transactions made with the María Jo-sé Jove Foundation (a directors related party be-longing to the Jove family Group) correspond to

donations from Fadesa Inmobiliaria, S.A. amoun-ting to 321 thousand euros and the collection ofa loan plus interest amounting to 263 thousandeuros (311 and 1,397 thousand euros in 2005).

Remunerations received during 2006 by seniormanagers amounted to 2,727 thousand euros(2,217 thousand euros in 2005). Except for life in-surance policies which amounted to 4 thousandeuros in 2006 (nil in 2005), Senior managers donot receive any other benefits, such as loans, pen-sion plans, or the like.

As indicated in Note 1.2, within the framework ofthe takeover bid for Fadesa Inmobiliaria, S. A. byPromociones y Urbanizaciones Martín, S. A and Hu-son Big, S. L., Mr. Manuel Jove Capellán, presidentof Fadesa Inmobiliaria, S. A., notified the Bidders ofhis intention to propose to the Board of Directorsthe payment of an extraordinary remuneration orbonus to certain employees as a reword for theirwork during a certain length of time in the Com-pany. The total amount involved, net of tax with-holdings, is 30 million euros, while the estimatedgross amount is 46,154 thousand euros.

Other information regarding the Board ofDirectors.

Members of the Board of Directors holding sha-res in companies with the same, similar or com-plementary type of activity as the Parent or itsGroup, are listed below, with their respective po-sitions and functions:


29 • AUDITOR’S FEES

Audit fees regarding consolidated financial state-ments of 2006 amounts to 399 thousand euros(324 thousand in 2005).

In addition, fees paid in the year for other servi-ces rendered by the auditor amounts to 83 thou-sand euros (267 thousand euros in 2005). These

amounts also include fees obtained by otherfirms belonging to their international network.

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30 • EVENTS AFTER THE BALANCESHEET DATE

As indicated in Note 2.1 the bid was authorized bythe CNMV on February 6, 2007, which signals thestart of the mandatory acceptance period duringwhich time Fadesa Inmobiliaria, S. A.’s shareholdersmay accept the offer. All the information required bycurrent regulations regarding this bid is available inthe corresponding Explanatory Brochure on theCNMV website.

Subsequent to year end and prior to the preparationof these annual accounts, no events have occurredwhich could have a significant effect thereon.

31 • BUSINESS RISKS AND RISKMANAGEMENT POLICIES

Risks derived from financial instruments.

The main risks arising from the Group’s financialinstruments are interest rate cash flow risk, liqui-dity risk, exchange rate risk, and credit risk. TheBoard reviews and adopts policies to manageeach risk, as described below.

Interest rate cash flow risk.The Group’s policy consists of managing interestrate costs by mostly opting for variable interestrates. Consequently, practically all Group Com-pany debt is based on variable interest rates.

As most of that debt corresponds to the real esta-te business which, as a rule, is either amortized orassumed by third parties in less than five years,up until now it has not been considered neces-sary to use interest rate hedges. However, giventhe Group’s growth in the hotel segment, where acertain degree of financial leverage is requiredover periods longer than ten years, the manage-

ment of this type of risk is focused on finding fi-nancial structures that minimize the cost of debtover a multi-year horizon to reduce volatility onthe balance sheet.

The interest rates of financial instruments classi-fied as variable interest rate instruments are re-viewed at intervals equal to or less than one year.

Exchange rate risk.As a result of significant investment in Romaniaand Hungary, the Group’s balance sheet is expo-sed to exchange rate fluctuations. During the ye-ars covered by these notes, the Group did not se-ek to hedge against this risk because transactionscarried out in Romania have been of increasinglylower relative importance.

The Group is also exposed to transaction exchan-ge rate risk. This risk stems from purchases andsales made by operating units in currencies otherthan the functional currency. Approximately 5.6%of Group sales are made in currencies other thanthe functional currency of the unit making thesale, while nearly 5.4% of expenses are in curren-cies other than the functional currency of theunit incurring them.

Credit risk.With regard to credit risk arising from other fi-nancial assets of the Group such as cash and cashequivalents, financial assets available for sale, andcertain derivative instruments, the Group’s expo-sure to credit risk arises from a possible defaultby a counterpart, with a maximum risk equal tothe carrying amount of these instruments.

With regard to the Group’s core activity, real esta-te, since ownership of the property is not transfe-rred until the entire debt is collected, and giventhe current upward trend in the real estate mar-ket and appraisal values, at year-end 2005 therewere no losses from credit risk.


There is no concentration of credit risk, since no cus-tomer is responsible for more than 5% of the balan-ce recorded in trade and other receivables.

Liquidity risk.The Group’s aim is to maintain a balance between con-tinuity and flexibility of funding by the use of credit fa-cilities, bank loans, finance leases, and hire purchasecontracts.Fadesa works with practically all Spanish cre-dit institutions with which it arranges credit facilities tobe used as required by each particular activity. Thesefacilities are for amounts that are far higher than Com-pany’s actual requirements at any given moment, sothe risk of unavailability of funds is practically nil.

Risks derived from the Group’s Activity.

The FADESA Group’s core activity is real estate deve-lopment in Spain, Portugal, France, Poland, Hungary,Morocco, Mexico, Bulgaria and Romania which inclu-des, among other activities, the design, construction,and marketing of housing.

The main risks facing the Group in each activity canbe grouped into the following categories:

• STRATEGIC RISK: Arising from the definition ofFadesa Group’s strategy.

• OPERATING RISK: Arising from the actual activitycarried out by the Company which can be bro-ken down into quality risk, construction cost risk,environmental risk, and labor risk.

• BUSINESS RISK: Refers to the risks that could causethe destruction or reduction of the Company’s as-sets,principally as a result of construction accidents.

• FINANCIAL RISK: Arising from interest rate fluctua-tions.

• TECHNOLOGICAL RISK: Affecting IT or technologi-cal systems.

The Group’s risk control systems are based on a se-ries of strategic and operational actions aimed at im-plementing risk policies in each area of activity. The-se systems provide accurate information that enableGroup Companies to analyze and assess the variousrisks they are exposed to.

Strategic risksThe Executive Committee is responsible for definingFadesa Group strategy. It establishes the various tar-gets to achieve, periodically checks for deviationsfrom those targets at the different levels of responsi-bility, and takes corrective measures.

Operating risksQuality and construction cost controlsystemsThe Company has formal quality managementsystems in place.

These systems are based on the assignation and as-sumption of responsibility at different levels, and onadequate documentation of procedures aimed at pre-venting, detecting, and correcting any possible devia-tions from budgeted construction costs. Housing builtby the Fadesa Group is insured against structural de-fects by mandatory ten-year insurance policies.

EnvironmentalThe Group places great importance on ensuringstrict compliance with environmental standards, byassessing possible environmental impacts on a caseby case basis. In addition to complying with manda-tory standards, the Company applies a number ofenvironmental management principles:

• Energy saving.• The use, whenever possible, of recyclable orbiodegradable materials.• The use of appropriately certified materials.• The minimization and treatment of waste.• The raising of awareness in technicians andother workers.


Labor risksEnsuring that its workers perform their tasks withthe highest level of safety and satisfaction is aconstant priority for the Group.

To this end, in addition to ensuring strict com-pliance with prevailing regulations, the Companymaintains a policy of providing relevant training,encouraging staff participation, and controllingthe conditions under which staff work.

Labor risks are assessed periodically and preventiveactions (safety programs) involving the Company’sown staff and external professionals are put in place.

Business riskPrevention of business risk is achieved by meansof internal control procedures, and the evaluation

and analysis of the risks affecting business assets.The possible consequences of accidents arequantified and covered by appropriate insurancepolicies.

Financial riskThe purpose of the control systems for managingfinancial risk is basically to identify, evaluate, andcover all risks arising from interest rate changes.The Company aims to manage debt within an ap-propriate financial structure, mainly by the use ofassumable mortgage loans.

Technological riskThis involves the security of information systems(access control by personal passwords and thecreation of backup copies) and the protection ofintellectual and industrial property rights.











M E M B E R



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representada por


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M E M B E R




Management Report for the year ended December 31, 2006

FADESA INMOBILIARIA S.A. AND SUBSIDIARIES

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RESULTS OVERVIEW

Economic climate

The successful growth pattern of the Spanisheconomy continued unabated into 2006. Thestrength of internal demand, household con-sumption, and the dynamism of the real estatesector pushed GDP by 3.9%, the highest growthrate since 2001, thus continuing a 13 year run ofexpansion. However, the bases upon which thisdynamism is founded are still the source of imba-lances: YoY inflation is several points higher thanthe EU average, current account deficit is up to8.4% of GDP, and the external sector will onceagain shrink the overall growth of our economy.

Another highlight is the good performance of thelabor market, partly due to the recent reform thathas significantly increased subsidies for open-en-ded contracts: more than 700,000 jobs have beencreated. The jobless rate is at a 30 year low andthe number of workers registered with the SocialSecurity has ended the year at close to a record19 million. There has also been a significant boostto industrial activity, partly thanks to the growthof productive investment, and to the revival ofthe German and French economies, which has re-vitalized exports.

In short, in macroeconomic terms, Spain is enjo-ying a robust growth rate, with government ac-counts in the black, but with a productivity short-fall compared with our European partners whichshould be corrected if this current boom cycle isto have a chance of continuing.

The situation of the Spanish residential marketcan be summed up by saying that the real estateeuphoria of the last ten years did not only notabate in 2006 but we might even say that it spre-ad to most companies in the sector as takeovers,new listings, and foreign ventures became the or-

der of the day in the year just ended. With regardto key figures affecting the sector, while houseprices and the cost of land have continued theirtrend of the last two years and are slowing down,the growth rate is still considerable. According tothe Ministry of Housing, the price of private hou-sing grew by a YoY 9.1% while the price of socialhousing rose by 7.5%. These increases, combinedwith rising interest rates, meant that in 2006 itbecame even more difficult for Spanish familiesto get on the housing ladder. However, there area number of reasons for optimism: price rises ha-ve been slowing with every quarter (during thelast half-year of 2006 the average growth rate inprovincial capitals was only 3%, according to theSociedad de Tasación (Spanish Society of Real Es-tate Appraisers), the economy is performing well,unemployment is constantly falling, the arrival ofimmigrants ensures a strong source of demand,and the mortgage delinquency is still at a histori-cally low rate.

Meanwhile, the number of new home starts againreached a historical high. Published studies reportthat nearly 900,000 new homes may have beenstarted during the year just ended which, accor-ding to the Ministry of Economy and Finance, istwice the ideal number for a balanced develop-ment of the economy. The reasons for this new re-cord continue to be favorable interest rates, em-ployment growth, housing demand arising fromthe growing divorce rate, the access to housing byimmigrants working in our country, foreign inves-tment in second homes, the flexible mortgageterms offered by Spanish financial institutions,and a new factor that entered the equation in theyear just ended - the new building control regula-tions that came into force in September.

In the light of these figures we need to reflect onthe Spanish real estate stock, which has grownspectacularly in recent years. According to figuresfrom the Ministry of Housing, Bank of Spain, and


Caixa Cataluña, the number of houses in Spaingrew from 19.7 million in 1998 to 23.2 million atthe end of 2005. In this same period the numberof homes increased from 12.8 million in 1998 to15.5 million in December 2005. These figuresshow a major growth in demand running parallelto supply, either due to longer life expectancy, orthe change in the traditional family model (an in-crease of single person households) or due to im-migration, because what we can be sure of is thatSpain’s population has not experienced such ahigh rate of growth. Another aspect of this scena-rio that should be mentioned is that the apparentexcess of supply has practically no effect on theprimary home market; rather it affects houses ac-quired as holiday homes and for investment.

Finally, as mentioned earlier, it should be remem-bered that 2006 was a year of frenetic corporateactivity. Takeovers in progress or recently com-pleted and the IPO’s launched – all newly listedcompanies performed exceptionally well – is in-direct evidence of the confidence that the marke-t’s financial players have that the sector will re-main robust in the years ahead.

The future

This coming year, 2007, will be marked by the appe-arance of some important new laws and regulations:

• The new Land Use Law, the main purpose ofwhich is to modify the criteria used to rateland in order to prevent it from becoming ar-tificially expensive.

• The new Spanish Technical Building Code(CTE), the main purpose of which is to impro-ve building quality but, according to somestudies that have been published, it may alsoaffect construction costs and therefore pushup final prices.

• The new Mortgage Law, the aim of which isto reduce the cost to borrowers – in particular,notary and registry expenses –, to promotegreater competition between financial institu-tions, to prevent default by permitting the in-troduction of new products, and to providegreater transparency and information for theend customer.

With regard to future trends, the Directors belie-ve – as do most analysts and professionals in thesector – that the current growth rate of the hou-sing market may slacken during 2006. We expecthouse prices to rise by between 5% and 7% andthat the number of new home starts will gra-dually ease to around 600,000 units a year, a figu-re which may be considered as sustainable forthe years ahead.

In conclusion, the real estate sector is enjoying astable climate or one with a gentle trend towardsdeceleration which will allow the companies in-volved to open up new business lines, such as theprovision of extra customer services, or productor geographic diversification in the race for grea-ter size and efficiency which may well be the keysto future success. The most serious concern forthe future is the possibility that so many years ofintense building activity may give way to an ex-cess of demand or make it harder for people toaccess the housing market due to rising interestrates and house prices.

Significant events

Fadesa Inmobiliaria, S.A. is the parent company ofthe Fadesa Group, a group of companies mainlyengaged in the real estate and construction busi-ness. Its corporate purpose and core activitiesconsist of real estate development and construc-tion, together with all related activities (purchaseand sale of plots, building, urban land use mana-gement, etc.).


For Fadesa the year 2006 was characterized by anumber of significant events that occurred, whichmarked a watershed in the history of the company:

• March saw a renewal of the senior manage-ment with the appointment of a new CEO, thecreation of an Executive Committee, and the set-ting up of five new departments. The main pur-pose of these changes was to create an organiza-tional structure that was more focused on whereCompany’s main activity is carried out: the va-rious local offices or geographic business areas.

• In September, a number of holding companiesof which Mr. Manuel Jove Capellán is the majo-rity shareholder reached an agreement with thecompanies of Grupo Martinsa and Mr. AntonioMartín to launch a takeover bid for 100% of thestock of Fadesa Inmobiliaria. Accordingly, on No-vember 2, Promociones y Urbanizaciones Martín,S.A. and Huson Big, S.L. requested authorizationfrom the CNMV for a takeover bid for 100% ofFadesa Inmobiliaria, S.A.’s stock at a price of 35.7euros per share.

The year also saw the continuation of the Compan-y’s international expansion process. This process hasled to the acquisition of more land in Poland, France,and Morocco, while the Company has also startedoperations in Mexico, Rumania, and Bulgaria.

Performance of the Group’s businesses

Comparable net profit for 2006 amounts to 230.4million euros, 27% up on the same figure for2005. The Directors are satisfied with these figu-res and puts them down to the continuing suc-cess of the Company’s unique business model forits core business. This is evidenced by significantgrowth both in absolute terms and in relativeterms (margins), and by the fact that the interna-tional expansion process initiated some yearsago is now beginning to bear fruit.

Performance by activityThe Group’s revenues during 2006 totaled 1,279million euros, a 31% increase, with a gross marginof 40.3%, 0.6 percentage points higher than in2005.

Real estate activity generated a turnover of 1,211million euros, with a YoY growth of over 31% andgross margin of 42%. This margin, significantlyhigher than 2003’s and 2004’s figures - 30% and37%, respectively -, is slightly higher than the figu-re achieved in the previous year. However, there isa fundamental difference between the two years:while in 2005 the activities which traditionally ha-ve a higher gross margin (the sale of land and par-cels) represented 30% of all revenue from real es-tate activity, in 2006 this percentage was only23%. The key to this positive performance lies inthe margin obtained from the delivery of homesand other residential units, which was the highestever posted by the Company at year end. Thisachievement has obviously been aided by the sig-nificant rise of house prices, albeit somewhat slo-wer than in past years, set against a moderate in-crease in the cost of the raw material – land. Butthis does not detract from the existence of otherdrivers, such as international expansion, productdiversification, or Fadesa’s healthy positioning in ahighly competitive business environment.

Turnover from this activity, the Group’s core busi-ness, therefore includes the sale of homes andother residential units, which amounted to nearly899 million euros, 44% more than in 2005, and sa-les of parcels and tracts of land, which amountedto 279.8 million euros.

The international expansion process, initiated so-me years ago with the aim of exploiting any newbusiness opportunities arising in other marketsthat might be of interest, is starting to have animpact on the Company’s overall figures. In 2006the following significant events took place:


• In Mexico: Fadesa started operations in Mexi-co by participating in the creation of a majorresidential and tourist complex on a 2 kilome-ter beach front, 30 minutes away from PuertoVallarta, consisting of a luxury hotel, apart-ments, and a beach club.

• In France: The first major projects are under-way, including the development of a 6 hectaresite in the town of Massy, very close to Paris, incollaboration with the American investmentfund, Colony. Land in Lyon and the Île de Fran-ce region are being acquired for the construc-tion of some 2,000 homes.

• In Morocco the first hotel, the Barceló Casa-blanca, was opened, and the Company wontwo tenders held by the Moroccan govern-ment for the development of two tourist re-sorts on the Mediterranean coast of Morocco,near Tetuan. Meanwhile two projects were of-ficially launched; one in Marrakech, where theGroup will invest approximately 300 millioneuros in a complex comprising 2,685 homesand the other in Kabila, where a high-end resi-dential and tourist complex will be built.

• In Poland several sites under various urbandevelopment regimes were acquired in War-saw and other cities with major growth poten-tial with a view to building more than 6,000homes.

• In Bulgaria, the first operation was finalizedwith the purchase of a piece of land in the cen-ter of the capital city, Sofia, earmarked for theconstruction of an initial development of high-rise housing, commercial units, and offices.

• In Romania the first land was acquired,among which is a site for approximately12,000 homes in Bucharest.

• In Portugal the Group took a further step for-ward in the process of establishing itself withthe launch of a residential complex featuringmodern architecture in the very center ofOporto.

• In Hungary the acquisition of land in districtXIII was completed for the development of aresidential and commercial project involving2,700 homes. Agreements were also reachedwith District XXI City Council for the develop-ment of Csepel.

With regard to other activities, considered by theDirectors to be secondary, the hotel business tur-ned over more than 50 million euros, a YoY incre-ase of nearly 50%. Another important aspect isthat the gross margin of the hotel activity is upby 2 percentage points, in spite of the fact thatmany of the hotels are in their initial operatingphase, which is when the require the most inves-tment. Therefore, not only are there more hotelsin the Company’s inventory, but their individualmargins are gradually increasing.

In the year just ended, industrial activity contri-buted 17.4 million euros to the Group’s consoli-dated turnover, 1% more than in the previous ye-ar. As we have stated on several occasions, thisbusiness line is considered to be non-strategicand, therefore, may be sold off in the not too dis-tant future.

After taking into account general costs and themargins generated by all the Group’s various ac-tivities, we can conclude that the Group’s EBITDAhas improved significantly in absolute terms,+28% to 361 million euros while there has been aslight drop in terms of profitability mainly due tothe investment required by the international ex-pansion process that Fadesa is currently immer-sed in, which the Directors consider to be one of


the cornerstones of the Company’s medium termdevelopment plan.

BacklogThe number of private contracts signed during2006 amounted to 10,055 units at a value of1,472 million euros. This represents a very positi-ve upward trend compared to the previous year(+39% and +15%, respectively) if we exclude thesale of Torres Europa de L’Hospitalet in 2005which should be considered as a an extraordinarytransaction. Bearing in that mind in 2006 theGroup delivered 6,913 units of all types (1st and2nd homes, social housing, and parcels) worth1,192 million euros, the backlog at December 31amounts to 14,822 units worth a little over 2,332million euros, which will provide a solid basis forfuture results in 2007 and 2008.

Investment in land and assetsLand is considered as inventory on Fadesa’s ba-lance sheet as the Company’s business model forits core activity - real estate development – invol-ves the acquisition of this raw material, its urbanmanagement, the design and construction of re-sidential units, and their subsequent sale. TheCompany’s inventory of available land is therefo-re one of the main indicators of the investmentmade in order to drive the company’s growth.

At December 31, 2006 the Company’s inventoryof entitled land in Spain, Portugal, Morocco, Fran-ce, Poland, Hungary, Bulgaria, Romania, and Mexi-co amounted to over 23.7 million buildable squa-re meters, 18% higher than the previous year (seeattached table).

The Group’s asset management business is centered on developing the hotel business which leverages de-velopments for tourism on land in inventory zoned for such a purpose. In 2004 a framework management


agreement was signed with the Barceló chain for the development of what, in principle, is to be a total of 19hotel projects. At year end the Group was operating 16 hotels (4 more than the previous year).

Asset valuationThe market value of the Fadesa Group’s real estateassets at December 31, according to the valuationmade by CB Richard Ellis, amounts to 10,500 millioneuros.

Research & DevelopmentDue to the nature of the company, its activities, andits structure the Company does not normally carryout research and development activities.

Own sharesDuring 2006 Fadesa Inmobiliaria, S.A. performed thefollowing transactions with own shares:

Positive income net of taxes obtained from own sha-re transactions amounted to 3,230 thousand euros.

Activities of the Audit Committee during 2006The Committee met on six occasions.

The purpose of the meetings was to review financialinformation to be submitted to the Board of Direc-tors. The Financial Director and the CEO were pre-sent at these meetings.

In the course of the year the external auditors attendedthree meetings of the Audit Committee in order to:

Analyze the audit work performed on the 2005 ac-counts

Report on the audit plan for 2006

Report on the preliminary phase of the 2006 audit.

In each of these meetings the Committee issued a fa-vorable report on the quarterly accounts presentedby the Company for the first quarter, first half year,and first nine-months of 2006, and made progress insetting up the internal audit department; a risk maphas been produced, risks have been classified, andthe Internal Audit Plan for 2007 has been approved.

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AUDIT REPORT ON CONSOLIDATED FINANCIAL STATEMENTS

DEPARTMENT OF CORPORATE MARKETING AND COMMUNICATIONS, FADESA

LEGAL DEPOSIT: C-2412-03 PRINTERS: Imprenta Mundo PHOTOGRAPHS: Documentary Collection, FADESA DESIGN AND COORDINATION: Octo Publicaciones

HEAD OFFICE:

Avda. Alonso Molina s/n - Edificio FADESA - 15008 La Coruña - Spain

Phone: +31 981 179 200 - Fax: +31 981 170 050

www.fadesa.es

martinsa fadesa annual report 2006

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