HOTELS FRANCHISES REAL ESTATE PROVAC VENTURES

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3 HOTELS FRANCHISES REAL ESTATE PROVAC VENTURES

4 Key Statistics In thousands of Mexican pesos Var. Real Hotel investment transactions 3,458,003 3,213, % Administration, brand, etc 1,798,290 1,695, % Other LOBs 1,432,376 2,322, % Total revenues 6,688,669 7,231, % Operating Revenue 573, , % Operating margin 8.6% 11.1% -23.1% Majority Net Profit 24, , % Net cash flow from operations 348, , % EBITDA 1,021,384 1,243, % Total liabilities/total assets Bank liabilities/total assets Hotels by Brand/Country Brand Mexico Brazil USA Argentina Chile Total Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms , , , , , , , ,635 Others Total 96 16, , ,849 % 85% 10% 3% 1% 1% 100% Country Mexico Brazil USA Argentina Chile Total Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms City Hotels 84 13, , ,119 Resorts 12 3, ,730

5 Growth Fiesta Inn Hotels Members Fiesta Americana Vacation Club Hotel Loyalty Program Fiesta Rewards members 60 30,000 3,000, ,000 20,000 15,000 10,000 5,000 7,795 11,520 15,820 20,352 25,024 27,563 28,303 29,604 2,500,000 2,000,000 1,500,000 1,000, , ,000 1,109,000 1,318,000 1,616,000 1,852,000 4,780 2,304,000 2,400,000 2,464,000 2,636, Hotel Inventory Mix, by country 2 Rooms Mexico 16,810 85% 2. USA 679 3% 3. Brazil 1,971 10% 4. Argentina 247 1% 5. Chile 142 1% Hotel Inventory Mix, by brand 1 Rooms Live Aqua % 2. Fiesta Americana 5, % 3. Fiesta Inn 8, % Caesar Park % 5. Cesar Business 1, % 6. Fiesta Americana Vacation Club % 7. One Hotels 1, % 8. Others %

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7 Annual Report A Letter to Investors Dear Investors When confronting hard times, businesses with vision focus on the tasks at hand, learn, capitalize on their strengths, and take actions to insure reaction capacities and results. Therefore, in 2010: We focused actions, decisions and projects on strengthening our hotel leadership position in Latin America. We performed under pressure, capitalizing on the enormous potential of competitive advantages that have created a resistant, creative and growing company, regardless of how difficult times may have seemed to be. We took action, made decisions and took up new projects that have improved our current performance and results. Having earned investor confidence, our development plan will continue to move forward and today includes more than 38 new hotels by Hotel Operations Posadas has come through two difficult years: 2009, with its world economic crisis and influenza scare; and 2010, during which the effects of that crisis were still being felt despite the economy s incipient recovery. These challenging times have been the source of some valuable lessons; they are a testament to our teams immense value; and have demonstrated Posadas s solid leadership in the Latin American hotel sector. Outcomes in hotel operations the very heart of our business were as diverse as our offering. While some hotels saw occupancy rates decline due to security issues and natural disasters, this was not the norm in other Mexican destinations. At city hotels, recapturing the business travel segment at the end of the year allowed annual performance to rebound. We can report positive results at South American destinations, especially Brazil. As we remained conscious of market changes, new commercialization models led to the conversion of two Fiesta Americana hotels and Cancún s Live Aqua to an allinclusive plan that includes food and beverages. This new branding approach within the market was adopted in November and delivered satisfactory results, significantly increasing resort occupancy rates and profitability by the end of the fiscal year. To assure our brands leadership position, Mexican hotels continued to apply quality-control systems that resulted in an almost 5% increase in Guest Loyalty numbers. In South America, every program and tool we have for measuring guest satisfaction and carrying out actions that enhance service and quality indices were implemented.

8 6 Posadas Hotel Brands Looking toward the future, we have initiated two essential projects designed to strengthen Fiesta Americana and Fiesta Inn s leadership position and service promise. Specifically: The redesign of city Fiesta Americana properties in preparation for new growth on the part of the emblematic Posadas brand at a number of locations throughout Mexico. The 2012 opening of the Fiesta Americana Puebla in the city s best neighborhood will spearhead this new era for the brand. The new Fiesta Inn concept, which features image and brand services innovations designed to better respond to business traveler needs. This project already a reality with the 2011 opening of the Fiesta Inn Zacatecas and the Fiesta Inn Insurgentes in Mexico City simultaneously seeks to enhance profit margins and the chain s appeal to investors. Actions that Consolidate Our Leadership Position As previously mentioned, every decision made in 2010 was backed by a single idea: strengthening the company s leadership position. As such, other project efforts were actively undertaken, including: The continual and consistent development of proprietary distribution channels such as our web portal, which now offers an enhanced customer-service experience and is being increasingly used in the booking process. The early 2011 launch of a shared-brand Santander/Fiesta Rewards credit card. Our partnership with one of the world s most important banks includes jointly designed innovations we are certain will take this new monetary instrument to a market leadership position. The creation of Summas today yet another link in the value chain that Posadas offers investors. The operation identifies the very best providers for needed acquisitions at the best possible price, and capitalizes savings related to the purchase of necessary Posadas operations supplies and services. The adoption of the Balanced Scorecard (BS) methodology for the creation of a strategic decision-making map. BS began operating at the end of 2010 as a complement to organizational definitions that grouped Posadas s divisions into business units, and now translates our strategy into a multi-faceted approach focused on measurable objectives that allow for a quick, effective reading of real and expected organizational performance. Ongoing Growth Growth did not stop for Posadas in We opened five hotels in Mexico: One Reynosa Valle Alto, One Playa del Carmen Centro, One Puebla Finsa, One Saltillo Derramadero and Fiesta Inn Monterrey Tecnológico, along with Fiesta Inn Zacatecas, opened in January of the current year. South America saw the opening of Caesar Business Manaus Amazonas, representing our first operation in the north of Brazil. The hotel Posadas s thirteenth in South America is the prelude to a new era of regional growth, since we will open two Casear Business properties in 2011 and will launch the One brand in the Economy Class sector there. In sum, the company s Development Plan calls for 38 hotels and 5127 rooms in the next three years, representing a total investment of nearly $300 million USD. Ninety-nine percent of this capital is derived from independent investors. Vacation Club and Other Lines-of-Business (LOBs) Revenue at Provac, the Business Unit that manages Fiesta Americana Vacation Club, represented 17.5% of the group s aggregate revenue. This percentage is inferior to the percentages reported in recent years. Nevertheless, it should be noted that toward the end of 2010 and the beginning of 2011 a rebound in membership sales has been registered and the overall number of members has grown by 5%. Additionally, as in every other year, this LOB continues to serve as an effective distribution channel for our hotels. In 2010, the number of room nights sold via the Vacation Club grew by 16% in comparison to 2009.

9 Annual Report This year it will be essential that the Provac LOB establishes the bases for achieving a new operative phase. This is also the goal of Quintana Roo s Chemuyil. The latter development/destination will not only double Vacation Club s offering; it is also the largest project ever undertaken by the company in its history. Subsidiaries Ampersand, Konexo and Conectum will continue to capitalize on our technology platform s values as well as on knowledge generated by Posadas, particularly with regard to the administration of loyalty programs, call center operations and efficient financial/administrative processes. Financial Decisions A number of important financial decisions were taken in In January, we successfully concluded the issuance of 9.25% Senior Notes 2015 five-year bonds, for a principal amount of 200 million dollars, which have been used to pay 93% of liabilities set to mature between 2010 and 2012, offering financial stability to the company which was key throughout the fiscal period. This allocation s excellent outcome has been quite satisfactory since investor demand exceeded several times over the amount put on offer, and attracted more than sixty bluechip investors from the Americas, Europe and Asia. In August, Posadas reported that its transfer contract for stock participation in Nuevo Grupo Aeronáutico, S.A. de C.V. had produced the desired effect. The cost of the transfer was symbolic since starting in December 2008, the investment representing 30.4% of the controlling company s share capital was registered at zero and therefore had no negative impact on company bottom line. Furthermore, owing to NGA s difficult financial situation, Posadas was unable to collect for services rendered. Reserves for all accounts payable, totaling slightly more than 113 million Mexican pesos, were created in September. On an administrative level, as part of an effort toward enhanced efficiency and reduced operating costs, we have created a restructuring plan. This plan key to assuring profitability consolidated administrative areas that now function in a centralized fashion and also reorganized most services in the technology area. This measure, taken at the end of the fiscal year, will provide annual savings in excess 100 million Mexican pesos. By means of this report we also wish to confirm that in spite of difficult circumstances, Posadas continues to move forward. It worked unstintingly in the definition of a Business Vision with a clear horizon for today and for With a current roster of 112 hotels and nearly 20,000 guest rooms, Posadas projects continued growth in Mexico and a roster of more than twice the current number of hotels it operates in the rest of Latin America. This vision goes hand in hand with a new management model that allows us to move forward more securely, toward a future we are contemplating with renewed optimism. We are optimistic because we have established solid bases that assure results for us in a world whose ever-challenging conditions are now a permanent reality. We are also optimistic because our leadership position is supported by strong brands, efficient businesses, a development plan that translates into ongoing growth, and committed teams that have worked and will continue to work toward any necessary goal. If these teams talent, commitment and performance were key in 2009, they were even more so in 2010, and they will continue be essential to the achievement of our vision. Our clearly defined strategic map and direction, 33 hotels in development, an upcoming historic project, expert operational bases, confidence on the part of our stockholders and the unquestionable talent of our teams offer more than enough reasons for believing in our future and for working even more enthusiastically to make that future a reality. Thanks once again for your support and trust. GASTÓN AZCÁRRAGA Chairman of the Board

10 8 Posadas TOP OF MIND HOTELS Our leadership position in Mexico and Latin America always means a commitment to working according to our values. Creating unforgettable moments and successful stays through consistency and the service that today s world demands is our commitment to guests.

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13 Annual Report Occupancy rates up 17% from 2009 reflect our recovery in the South American market, both at Caesar Park and at Caesar Business. Posadas Hotels The results of our hotel operations in Mexico stabilized in 2010, thanks to diversified inventory. Posadas hotel operations have come through hard times that have taught us a number of valuable lessons. They have also reaffirmed our hotel teams enormous value, the benefits of franchising, and the good that comes from a consistent application of quality-control systems and training/development programs that construct a culture of customer service that grows stronger every day. While some hotels saw occupancy rates go down because of security and/or natural disaster issues, this was not the case at every Mexico destination. Recovery in the business travel segment at city properties during the second half of the fiscal year spurred better outcomes in the Mexican hotel mix. At resorts in order to respond to consumer demands in a more agile fashion the decision was made to convert three of our hotels Live Aqua Cancún, Fiesta Americana Cozumel and Fiesta Americana Condesa Cancún to an all-inclusive format. This new business/market approach, adopted in November, has elicited an immediate and satisfactory result, significantly raising occupancy rates and profitability at these resorts by the end of the fiscal year. South American hotel operations represented by the Caesar Park and Caesar Business brands report solid, positive results. Our hotel EBITDA growth rate of 162% speaks not only of recovery in markets like Brazil, but is also a testament to acceptance of our brands and the effectiveness of the actions we have taken. Our alliance with Sercom during the process of outsourcing our call center has resulted in an increase in productivity, enhanced customer-service and reduced costs. Additionally, 2010 saw the implementation of Posadas quality-control systems that now allow us to make critical decisions to improve service and guest loyalty indices. While the impact of the earthquake affected 1Q results in Chile, the market rebounded starting in the second half of the year, driving occupancy rates, typically in the business and wholesale segments. Strategies in Argentina focused on international markets since the local market is still significantly depressed.

14 12 Posadas The definition of a new model for Fiesta Inn, as well as the new concept for Fiesta Americana city properties, shows every sign of achieving the perfect balance between guest satisfaction and a more attractive profit model. Posadas as Property Owner Since 2009, and in light of the fact that the company also incorporates a real estate business that effects intense asset investment, we consider it necessary to give greater importance to Posadas s role as a Property Owner. In this way we maintain a focus that looks out for two aspects of our business: hotel operations and profitability. Inmobiliaria Posadas safeguards our capital investments as well as their impact in the creation of revenues and profits. Therefore all tools and financial/operative reports needed for the in-depth analysis of business performance were applied throughout the fiscal year, and, based on the knowledge they provided, were used to further enrich close collaboration with operational areas. Two projects of importance to Posadas emerged from this joint effort: (1) the new Fiesta Inn concept launched in March 2011 with the opening of the Fiesta Inn Zacatecas and destined to take the brand to a new standard; and (2), the definition of what the Fiesta Americana city property profile will be.

15 Annual Report A new management model What are the financial objectives we must meet in order to satisfy our stockholders? What obligations must we meet to reach profitability objectives? What processes must we perfect to reach those goals? How should we acquire, innovate and leverage information for achieving the best results? To discover the answers to these questions and face the challenges that the Company Vision for 2015 implies, a proven management model has been adopted: the Balanced Scorecard methodology. With this tool which translates vision and strategy into a single aggregate focused on measurable objectives Posadas concentrates its energies on a strategic map where every LOB finds its specific place. The new organizational break-down allows us to measure current organizational performance and provides a precise agenda for decision-making, expediting executions and the generation of results. In the long term, the model provides us with a better reading of market changes, and makes quick internal adaptation, ongoing planning and quicker response times possible. Talent and Human Capital As in 2009, our training and certification strategy sought to strengthen Posdas hotel brands sector leadership in its respective markets. As such, it stressed efficient operative and service process management, consolidated brand standards, guidelines, and the permanent construction of a customer service culture. Courses entitled Garantía Operativa ( Operative Guarantee; acronym in Spanish: GO) and Las Personas Primero ( People First; acronym in Spanish: LPP); along with coaching and leadership courses, as well as an Executive Development program that takes up a performance and potential-evaluation process, based on competencies and training in managerial skills, were implemented. Our Sales Portal currently features complete information on Posadas Hotels commercial strategy, products and services, business policies and procedures, operating/commercialization tools and the Posadas Sales Methodology tutorial that establishes the bases for our certification process. Our goal is to continually enhance the site in order to assure that Posadas has access to a valuable tool that effectively supports the efforts of a high-performance sales team priorities will be the following: Develop and follow up on an operative training plan that assures every person in every hotel is entirely aware of and completely meets his/her respective responsibilities. Optimize institutional programs whose degree of effectiveness will be reflected in guest satisfaction. Restructure and update Certification and Trainee Programs.

16 14 Posadas Quality indices rose nearly a point, to 89.7%, and Guest Loyalty figures grew by slightly more than three percentage points, from 67.4% to 70.7%. Quality-Control Systems: Keeping Our Promise to Customers Our ongoing efforts to have a Culture of Service form a daily part of our hotels and brands continued to create benefits in These results prove that the Delphos System is indeed a Culture of Service as well as an excellent tool for marking out surefire paths to innovation. In fact, an additional step was taken in this direction by carrying out needed technological changes in our database in order to record all possible data that could lead to delighting repeat guests. Today the number of hotels operated by the company, and their far-flung geographical placement, is no longer a problem when it comes to standardization and service levels. Our quality-control systems allow us to verify in what ways process alterations or facility improvements are being put into practice, along with the results of these changes (Prometeo); they also allow us measure and judge the impact of each initiative within the guest experience (the LINC/Lealtad Inspirada en Calidad program loyalty inspired in quality). Standout improvements to these systems in 2010 were the following. Achieving a more-than-50% express checkout rate, which significantly eases workload at the front desk and further enhances the customer experience. The roll-out of a Preference Program that even further personalizes service, strengthening guest loyalty; and the Skills Training Program that empowers publicfacing team members to make amends for bad service. Information as the base for creating enhanced customer knowledge and by extension, better outcomes becomes more critical with each passing day. As such, the CRM (Customer Relationship Management) area is currently focused on predictive analysis based on guest profiles, segments and behaviors. Additionally, Delphos is subject to a continuous improvement/fine-tuning process with regards to data gaps that facilitate the creation of even more precise models that eventually become an excellent information resource for improved service and enhanced certainty when it comes to business decisions. Every day, an average of 700 comments are processed, affording instant awareness of problems at hotels as well as of team members who excel at their work.

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18 16 Posadas Hotel Brands Live Aqua In 2010 specifically as of November Live Aqua Cancún switched to become an all-inclusive resort, in order to provide a more attractive offering to its market that better responds to vacationer demands. The change required the elaboration of a new brand position centered on one principal idea: enjoying vacations without limits. A media communications campaign directed at wholesalers, consortia, clients and guests was structured around the idea. Additionally, a $200 USD Resort Credit promotion was created, offering guests a chance to receive upgrades, premium food and beverages, or massages at SpaAqua. SpaAqua continues to leverage the prestige afforded it by winning Spa magazine s Silver Sage Readers Choice Award, which named Live Aqua Cancún Mexico s Preferred Resort/Spa in As did Live Aqua, Fiesta Americana switched two of its resorts to an all-inclusive format in November 2010: Fiesta Americana Condesa Cancún and Fiesta Americana Cozumel. Fiesta Americana and Fiesta Americana Grand Switching two Fiesta Americana-branded hotels to an all-inclusive format capitalizes on growing trends among vacation travelers. The benefits of the $200 USD Resort Credit were also leveraged in support of sales. From an operations standpoint, the new model subject to an immediate response on the part of the US/Canada market allows the hotels to become experience facilitators focused on shared family time. From a commercial perspective, the conversion offers a more attractive product to wholesalers and international travel agents and also offers sustained occupancy increases as was indeed the case this year. This kind of response flexibility in selected markets, along with being Mexico s number-one hotel brand, lets Fiesta Americana and Fiesta Americana Grand maintain a privileged position as regards top-of-mind (16%) as well as a 57% share-ofmind, and all within a fiercely competitive and ever-more-fragmented market. Precisely for this reason, communications strategies emphasized remembering the special moments that a five-star, Grand Tourism brand offers its guests, strengthening the emotional connection. It should also be noted that the Fiesta Americana Grand Coral Beach Cancún Resort & Spa opened Gem Spa, an impressive wellness center featuring 26 therapy areas, the Gem Café, a beauty salon, boutique and sensation pool will mean new brand attributes. At resorts, these include the benefits of a strategic alliance with the Walt Disney Company and its subsidiary, Marvel, to license the Super Hero Squad for use as a theme at Fiesta Kids. At city hotels, new Fiesta Rewards floors are being developed where Platinum and Gold level members will enjoy special amenities and VIP privileges.

19 Annual Report In 2012, the big news for the brand will be the opening of Live Aqua Bosques, in Mexico City, which brings the Posadas brand lifestyle to Mexico s capital. Our most important project will conclude in 2012 and will require intense efforts throughout 2011: the launch of the new Fiesta Americana city hotel, whose goal is to lead the brand to a whole new evolutionary phase when it comes to service and guest attention and which at the same time ensures an even more competitive ROI. Fiesta Inn In 2010, Fiesta Inn achieved a record index of spontaneous brand awareness, due among other reasons to the fact that brand revenue growth has allowed for increased advertising investments in recent years. Despite the difficult situation in which the Mexican hotel industry has found itself, Fiesta Inn increased occupancy rates by three percentage points to become the four-star brand with the highest occupancy rate (our closest competitor came in three percentage points below). On top of this solid base, Posadas s most high-growth brand is rolling out the New Fiesta Inn in 2011 a definitive step that reinforces the brand s leadership position in the business class segment. This ambitious transformation relies on avant-garde design as a means of conserving and strengthening brand leadership. Every new Fiesta Inn hotel will be inaugurated in accordance with these new guidelines or, in the case of pre-existing properties, will undergo this change and evolve according to a three-year renovations master plan. By 2015, the chain s more than 65 hotels will reflect the same, one-of-a-kind concept.

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21 Annual Report Fiesta Inn s new concept, already in operation at Fiesta Inn Zacatecas, features spaces that change the way guests interact not just with the hotel, but with other guests and takes the concept of connectivity one step further. The evident transformation in terms of image and service will involve minimalist, functional spaces; a panoramic Lounge with work tables, easy chairs, entertainment, conviviality areas, food and drink; B-ON, a modern and open space featuring computers, business services and enhanced connectivity; a Deli or La Isla area along with home-like self-service areas; technology and connectivity in all hotel areas; and rooms that surround guests in a stress-free environment. The brand logo has also been transformed to reflect this change, in line with the new concept as well as with observed trends in simplified graphic design. One Hotels This brand s solid performance in the economy class segment has lead One Hotels to finish off the year with a fifty-point brand recognition score a record score that closes the gap with its largest competitor by twelve points. It is a clear demonstration that brand strengths and mass media presence have been perceived by the market. Specifically, One s entry into pay-tv advertising earned it three spontaneous brand awareness points in just two months. Today, one of every two individuals is aware of the brand. Currently operating thirteen hotels, One s penetration in the Mexican market constitutes one of its most obvious strengths. Also true is that its consistency and simplicity along with backing on the part of the Posadas brand has transformed the brand into 2010 s strongest performer. One guests can join Fiesta Rewards loyalty program and redeem points in any Posadas hotel. Additionally, the brand features a 24/7/365 Reservations Center as well as a secure website for direct hotel booking (requiring no intermediary participation) where guests can take advantage of promotional offers from Fiesta Americana and Fiesta Inn. In South America as well as Mexico, One will undergo changes designed to create an even more amenable atmosphere for guests, at all hours of the day: tables for breakfast or for enjoying a snack; loan-out computers; spaces for relaxing or reading; and meeting rooms.

22 20 Posadas In 2011, two new Caesar Business properties will open in South America for a total of ten Caesar Business and five Caesar Park Hotels. Caesar Park and Caesar Business Caesar Park a luxury brand known for its exclusivity, style and personalized attention has emerged from a period of intense activity after having carried out infrastructure and service-area changes in each of its hotels. The objective is to continue strengthening its position in the South America luxury hotel segment, where the Ceasar Park brand is known for its long history, prestige and cosmopolitan atmosphere. Renovations at Rio de Janeiro s Caesar Park Hotel followed along these lines. A nearly twenty million dollar investment affected all hotel areas including rooms and suites, a celebrity-chef restaurant, business center and fitness center and the new concept for the Rio property guarantees a contemporary, creative and eco-friendly experience that raises the brand to new service levels in the context of international hospitality. In the Business Class category, Caesar Business is preparing itself for a period of growth. Caesar Business Manaus Amazonas opened in 2010, making it the tenth link in the chain as well as the brand s first incursion into the north of Brazil. Manaus is home to 78% of the region s economic activity and is known for its history, culture and ecological diversity. The 2011 inauguration of the Caesar Business Salvador De Bahía property, also in Brazil, will spearhead upcoming expansion for the brand.

23 Annual Report Fiesta Rewards: Occupancy Participation % Fiesta Rewards In 2010, Fiesta Rewards carried out a migration to tech platforms that enable enhanced control, flexibility and growth. Currently the program includes 1,250,000 active members, a number that represents a 31.5% increase over After thirteen years of partnership with Scotiabank, a decision was made to move in a new direction. Meetings between Banco Santander, the world s fourth largest financial institution, and Fiesta Rewards, the number-one frequent traveler program, led to the creation of Mexico s most important credit instrument and loyalty program: the shared brand, Santander/Fiesta Rewards credit card, featuring more than twenty benefits ranging from points for all purchases to up-to-15% discounts at Posadas hotel bars and restaurants. A joint 35-million Mexican peso investment in 2011 marks the consolidation of a commercial partnership whose goal is the issuance of 250,000 cards. This evolution underscores FR s role as the organization s most effective strategy for client-retention and added value, based on linking guests to our hotel brands. Note that in 2010 the program increased its participation in Posadas hotels total occupancy rates by 12.8%, raising its contribution to as much as 27.4%. To replicate these positive results, FR extended its benefits to South America in March, in the form of an international rewards program that recompenses guest loyalty across seven brands in more than 112 hotels throughout Mexico, Brazil, Argentina and Chile.

24 22 Posadas BRAND LOYALTY INVENTORY AND DISTRIBUTION CHANNELS Every year, Posadas welcomes almost three million guests who come to its hotels as part of vacation or business travel commitments. One of the Posadas brands signature values is our warm, friendly and cordial service, a reflection of traditional Mexican hospitality. While every brand may be different, Posadas service unites them all.

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27 Annual Report With every passing day, Posadas understands consumer behavior and buying habits better. So it keeps fine-tuning its strategy and client communications, both in traditional and via on-line media. Inventory and Distribution Channels Inventory Price-Optimization System In complex scenarios, Posadas Inventory Price-Optimization System applied price strategies designed for a market in contraction characterized by fierce price wars, low demand in numerous destinations, and consumption patterns that continued to see reduced advance-sales timeframes sometimes as short as fewer than 24 hours. As such, as was the case in 2009, it was necessary to stay very close to customers in order to understand their needs and respond quickly to their requirements. Agile response capacity was adapted to demand, which saw a rebound in city destinations, particularly in the center and west of Mexico in the second half of the year. Group segments also registered an 8% increase over 2009, while individual business guests grew by 17%. As well, interfaces designed for electronic distribution channels that drive sales in real-time via dynamic rate-fixing thus assuring a 100% use of inventory in the most profitable categories were key to achieving results and price consistency. Distribution Channels In 2010 based on revenue generated Posadas s most important distribution channels were its contact center, hotels, the website and global distribution systems (GDSs). Therefore, the average per-transaction operative distribution cost was kept at 2009 levels, a year in which a 14% reduction was reported as the result of a more favorable mix skewing to low-cost channels. It is the case that projects initiated in 2009 have delivered better performance. For instance: Upgrades to the Central Inventory architecture which have reduced availability/ performance problems as a result have led to higher conversion indexes thanks to optimization of the time it takes to complete a booking. They have also improved volume increment management resulting from special sales and those products that imply a higher transactional load in Central Inventory.

28 26 Posadas Rate automation (DAT national, local and corporate agreements) has reduced negotiatedrate publication times by 70% and will serve as the base for ongoing automated posting of other rate types. This also makes a possible a reduction in operational load and related costs, and increases the speed with which negotiated rates reach the market. HMP upgrades, which reduce Database Department operations work for posting rates not yet considered by DAT. Additionally they cut rate-publication times and increase market reaction capabilities at a lower maintenance cost. Streams. This project which improves replication and data-quality processes within electronic channels facilitates in-channel rate disclosure and reduces rate disparities. Expedia: Rate-change velocity has increased. HBSi. Connections to this new interface for the inclusion of traditional and virtual wholesalers allows for: a switch from a fixed-fee structure to a dynamic-fee structure that will allow traditional connected wholesalers to be more competitive at the same time they generate more business for the chain; and a reduction in rate-administration and booking-delivery operative costs. Some wholesalers now operate on this platform and there are ongoing efforts to create a connection plan for the incorporation of the remaining wholesalers.

29 Annual Report The Posadas portal lets guests maintain contact with the chain during the entire booking cycle, based on Central Inventory s proven service capacities. Proprietary Electronic Channels Bookings through the Posadas website (public and corporate) grew numerically by 7% and increased 18% in terms of revenue. Additionally, the percentage contribution of bookings made via this channel, in comparison to total reservations, equaled 10%, one half of one percentage point higher than in These results continue to attest to this distribution and communications channel s trustworthiness and credibility with respect to travelers. As such, additional upgrade efforts to the website were made in 2010, particularly in matters of user-friendliness, functionality and look/feel. Our current website offers an even more attractive design, created by industry use-ability and hospitality website experts; along with centralized content and language support; and among other attributes advanced search capabilities. Its architecture, designed to integrate external systems and easily incorporate new features, becomes the axis along which the entire guest experience (aka, the virtual stay ) is managed, from booking to checkout. On line, each guest s experience begins before arrival at the hotel, since among other options, he/she can make golf, spa or other service reservations in advance; or contact the concierge to reserve rental cars, purchase tickets, etc.; respond to surveys or take advantage of promotions for future stays.

30 28 Posadas Fiesta Americana Vacation Club continued to evolve toward a new operative phase in which the Chemuyil project, on the Maya Riviera, will constitute the definitive entry into the vacation property business. Vacation Properties As happened with all other LOBs, the Vacation Club also felt the effects of market conditions, including reduced tourist visits to resorts an instance in which a significant portion of memberships are sold as well as a reduction in points purchases in regional offices. As a result, Fiesta Americana Vacation Club reported: Revenues of $52.8 million USD. 89.2% of inventory sold. A 91% quality index. A 5% increase in overall member numbers, currently reaching 29,604. Average villa occupancy rates of 63.8%. A 16% contribution to total night-room occupancy reaching nearly 130,000. These figures underline Fiesta Americana Vacation Club s important role in relation to company bottom line, as well as to the strength of the product offering and its strengths in comparison to the competition. It is worth adding that in spite of market economic conditions, outcomes continue to provide margins as good as those of past years thanks to cost controls, contributions to sales via referral programs, and upgrade sales to existing members. This proves that the Club amply lives up to its promise to the client: Celebrate memorable vacations, custom-tailored to each guest s requirements. Finally, the development planned for Chemuyil whose sustainability model is in 100% compliance with strict mangrove-protection legislation is taking us to a new frontier. It is arguably the most important project Posadas has ever begun. Its 130 hectares 85% of which are reserved as wilderness and a sea turtle conservation areas constitute a destination development that captures a number of different markets simultaneously, at the same time it doubles Vacation Club inventory and offers members a chance to live a truly one-of-a-kind experience.

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32 30 Posadas POSITIONING THE DEVELOPMENT PLAN Posadas offers a fantastic selection of hotels and venues. Staying close to our customers means we re always ready to offer them enhanced service at the same time we make them feel entirely at home.

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35 Annual Report The 2015 Development Plan calls for 38 hoteles and 5,127 rooms, and a total investment of 300 million dollars, of which 99% comes from private investors. The Development Plan As was demonstrated in 2009, the global economic crisis did not hold back the Posadas growth strategy. Six hotels were opened in In Mexico 4 One properties: One Reynosa Valle Alto, One Playa del Carmen Centro, One Puebla Finsa, One Saltillo Derramadero, and Fiesta Inn in the city of Monterrey (at Monterrey Tecnológico University). In South America The Caesar Business Manaus Amazonas a hotel which marks our chain s first entry into the north of Brazil. The growth continues in This year, Fiesta Inn Zacatecas; Fiesta Inn San Cristóbal, Chiapas; Fiesta Inn Nuevo Laredo, Tamaulipas; and the Fiesta Inn Insurgentes Sur in Mexico City will open; along with One Ciudad del Carmen, Quintana Roo; One Guadalajara Centro and One Guadalajara Periférico; the Fiesta Inn Culiacán, Sinaloa; the Caesar Business Salvador De Bahía and the Caesar Business Puerto Montt, in Brazil. Thus in the course of the year, Posadas will add ten hotels and slightly more than 1200 rooms to its Mexico inventory. A new period of expansion in South America where the company now has a twelve-year business history also contemplates new Caesar Park hotels, a significant number of Caesar Business properties and at least six One Hotels the latter as part of the brand we are introducing in the region as of The challenges this implies are enormous, and principally involve Angentina, Brazil and Chile. They also kick off our entry into other countries in the region, which in general present interesting hotel development opportunities in the Business and Economy Class sectors. This planned expansion in Mexico and South America is a confirmation of not only of a reactivated investor market, but as well, of ongoing interest when it comes to investing with Posadas.

36 34 Posadas NEW HORIZONS VENTURES POSADAS Posadas partnerships with businesses that specialize in processes and services allow the organization to grow toward new markets and create enhanced benefits for clients as part of an increasingly international profile.

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38 36 Posadas In 2011, challenges spurred the start-up of the Santander/Fiesta Rewards shared brand; new program agreements with Banorte; Latin American geographical expansion with HSBC; and the inauguration of loyalty programs with PROSA and British American Tobacco. Ventures Posadas Since their rollout, Posadas new businesses have been highly productive, particularly as regards the administration of loyalty programs and our Contact Center. Each of these businesses amply leverages Posadas s competitive advantages and creates its own strengths in the market. As a leader in the loyalty program market and as the administrator of Mexico s most important programs Ampersand currently includes more than eight million members. AMPERSAND ampersand.mx A growing interest in the development of loyalty programs particularly in the banking, insurance and telecommunications sectors has brought an enormous benefit to Ampersand s bottom line. There were serious challenges as well, since increased competition specifically in banking has led the company to reinvent itself by optimizing its performance in the delivery of integrated solutions that range from program design and development to effective execution and administration. During FY 2010, Ampersand took on the Sieber platform migration project for Fiesta Rewards Posadas s loyalty program at the same time it successfully responded to the expiration of a number of contracts which were ultimately renewed due to the development of new service levels. The organization s potential is quite promising. In the coming five years, Ampersand is projecting significant revenue and EBITDA increases, thanks to its world-class loyalty program, incentive program, discount scheme, promotion and CRE assessment, development, execution, operation and administration capacities.

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40 38 Posadas Two-thirds of Posadas s night-room bookings are made using systems at Konexo Centro de Soluciones S. A. de C. V., making it a highly valuable tool for the franchise. In its fourth year of operations, Konexo continues to grow. Starting as a 200-employee internal department, today it is a solid provider of services to third parties and employs more than 2000 men and women at two work centers. KONEXO konexo.com Since its beginnings, this world-class contact center has not only provided services to Posadas, but has also served customer-facing companies particularly specialized in reservations, customer care, sales and post-sales telemarketing, loyalty program customer service, call center inquiries, back-office services, management, and account verification. Its goal is to serve as a natural extension of its clients businesses at the same time it insures that consumers are assisted in accordance with the client company s standards and service promise at optimal efficiency and productivity levels. Both its client focus and its quality service have positioned it as one of Mexico s ten most important contact centers and bring it closer to its goal: to be Latin America s end-client-satisfaction-focused solutions leader. As such, and in spite of the Grupo Mexicana loss, Konexo held its position in 2010, supported by the addition of clients such as Volkswagen and FAVC telemarketing; important account growth with Dish; Ocean Star Cruises pre-operative activities, and first-year fulfillment for the Nextel campaign. In 2010, Conectum saw revenues grow by more than six million pesos along with 1.6 million pesos worth of EBITDA. Its contract with CMR represents an annual increase of 15.6 million pesos for the organization. CONECTUM conectum.com.mx Proven experience in operative control and margins as well as low-cost processing of high-volume information quantities has led Conectum, where Posadas s hotel administration accounting and financial operations are processed, to become a shared Services Center able to attend to third-party clients with identical efficiency levels. As such, in addition to internal Posadas clients Live Aqua, Fiesta Americana, Fiesta Inn, One Hotels, and the Ampersand, Konexo and Globo Go subsidiaries 2010 saw Conectum conclude a long-term contract to provide digital administration and assessment services to more than one hundred restaurants operated by Corporación Mexicana de Restaurantes (CMR).

41 Annual Report In 2011, Conectum plans to further expand its client portfolio, largely in the restaurant, hotel and related hospitality sector. It should be mentioned as well that within Posadas, Conectum was one of the prime drivers behind the push for higher organizational efficiency levels. To that end, we redefined our Service Level Agreement in 2010, along with a new payment scheme initiatives whose true impact will be felt in the coming year. SUMMAS Given that new-business creation has been shown to be one of Posadas s true strengths in recent years and with a permanent view to capitalizing the strengths that distinguish the organization we created Summas. Its main goal is building a new and definitive competitive advantage for the franchise. The project, kicked off at the end of 2009, seeks to capitalize on resource and services savings connected to Posadas operations. In what way? By bundling purchases, identifying the best providers and constructing platforms that facilitate execution. The benefits reflected in every LOB constitute a new link in the value chain that the company offers investors, since by capitalizing on Posadas purchasing power, we acquire resources at better prices and simultaneously control costs. In the medium-term, the subsidiary will offer strategic procurement and purchasing services to companies requiring similar product categories. By the end of 2011, Summas will have negotiated more than 70 million pesos worth of savings.

42 40 Posadas SOCIAL CAUSES SOCIAL RESPONSIBILITY Our passion for service also extends to social causes, especially those that benefit Mexico s most disadvantaged boys and girls. Scholarships and healthcare support are hallmarks of the Fundación Posadas.

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44 42 Posadas In the last three years, foundation efforts have made a fundamental impact on 4,290 cases and have allowed 370 children, teens and young people to continue their studies. Social Responsibility The Fundación Posadas fundacionposadas.org Thanks to generous donations on the part of guests, providers and employees, the Fundación Posadas continues to carry out its work. A special company donation this year doubled its endowment, further strengthening these efforts. Foundation resources were largely dedicated to seven healthcare programs it oversees, in addition to growing the foundations biggest program: Una Oportunidad para Estudiar ( A Chance to Study ). As regards healthcare, the foundation supported: Four new Child Cancer Patient cases, as part of a joint program between the Mexican Children with Cancer Aid Society. To date, the evolution of all program cases has been closely monitored as part of foundation efforts that began with its creation six years ago. One case of a boy with a fractured spinal column. The foundation s Surgery program which has benefitted a number of children since its inception supports patients who cannot be properly attended to by public healthcare services due to the gravity or urgency of their situation. Thirteen cases that due to their degree of urgency or special characteristics could not be properly attended to by public healthcare institutions. The foundation s Other Diseases program focused on hardship situations by helping those in need with prostheses, treatments, medicines, doctor s visits and therapies. Differently abled boys and girls suffering from mental or psycho-motor disabilities and who required specific therapies not offered or not offered with sufficient regularity by public healthcare services. Almost 1,500 hours of therapy per child have been financed through this program. Through the Better to See You With program part of an alliance with ANESGO, an opthalmological organization that provides specialist, transportation costs and

45 Annual Report discounts 372 diagnoses were carried out and 338 pairs of glasses were distributed. Parents of the children in need of glasses contributed just 50 pesos. Children and teens with hearing problems. The Today I Hear Better program continues to turn up cases requiring medical consultations, specific studies and hearing-aid devices. The foundation carries out ongoing follow-up to respond to subsequent needs. This year Fundación Posadas additionally supported fifty-three employee families who were displaced in the wake of Hurricane Carl in Veracruz. Because of natural events that have occurred in places where we operate, to date the foundation has provided aid to more than 120 families in six different disasters through the provision of construction materials and housewares. With regard to the A Chance to Study program as has been the case every year educational support applications were first accepted in June in order to further raise the number of boys, girls and young people receiving economic help for the continuance of their studies. The foundation is providing 370 educational supports in the school year. A Chance to Study is a commitment that goes further than today s donations. In fact, it obliges us to redouble our fundraising efforts so even more young people can continue to study. This year the foundation also continued to do its part in relation to its Shared Programs. Together with the Fundación Televisa, it helped make dreams come true for seven children afflicted with terminal diseases, through donations for lodging and dining. It additionally contributed to associated foundations, in the form of room donations offered to eleven institutions. Lastly, material support included more than 12,500 items that were donated to a dozen institutions such as the Mexican Red Cross, the Los 60 Shelter, Casa de Maná and Fundación Sertull. Fundación Posadas s needs continue to grow. For 2011, we ve renewed our fundraising campaigns, whose goals include greater donor awareness and contributions for more and more stories of hope with each passing day.

46 44 Posadas Board of Directors GASTÓN AZCÁRRAGA ANDRADE Chairman of the Board and General Director PABLO AZCÁRRAGA ANDRADE Vice-Chairman of the Board and Hotelera Posadas General Director JAVIER BARRERA SEGURA General Director, Ventures Posadas JORGE CARVALLO COUTTOLENC General Director, Inmobiliaria Posadas RUBÉN CAMIRO VÁZQUEZ CFO JOSÉ CARLOS AZCÁRRAGA ANDRADE General Director, Propiedades Vacacionales Posadas Administrative Board Consulting Partners GASTÓN AZCÁRRAGA ANDRADE Chairman of the Board, Grupo Posadas ENRIQUE AZCÁRRAGA ANDRADE General Director, EXIO, S.C. PABLO AZCÁRRAGA ANDRADE Vice-Chairman of the Board and Hotel Posadas General Director FERNANDO CHICO PARDO President, Promecap, S.C. JOAQUIN VARGAS GUAJARDO Chairman of the Board, MVS Comunicaciones ANTONIO MADERO BRACHO Chairman of the Board, SAN LUIS CORPORACIÓN S.A. de C.V. SERGIO MARISCAL LOZANO Independent Consultant JOSÉ CARLOS AZCÁRRAGA ANDRADE General Director, Propiedades Vacacionales Posadas JORGE SOTO Y GÁLVEZ Independent Consultant SILVIA SISSET DE GUADALUPE HARP CALDERONI Private Investor CARLOS LEVY COVARRUBIAS Private Investor EMILIO CARRILLO GAMBOA Independent Consultant MANUEL BORJA CHICO Advisor to the Chairman of the Board, Grupo Posadas Alternate Advisors JAVIER BARRERA SEGURA JORGE CARVALLO COUTTOLENC CHARBEL CHRISTIAN FRANCISCO HARP CALDERONI ALFREDO LOERA FERNÁNDEZ Auditing Committee JORGE SOTO Y GÁLVEZ Chair EMILIO CARRILLO GAMBOA JOAQUÍN VARGAS GUAJARDO Social Practices Committee ENRIQUE AZCÁRRAGA ANDRADE Chair JORGE SOTO Y GÁLVEZ EMILIO CARRILLO GAMBOA Secretary RICARDO MALDONADO YÁÑEZ Alternate Secretary OLGA PATRICIA GUTIÉRREZ NEVÁREZ

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