Case Study - Club Med

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Club Med case study

Text of Case Study - Club Med

Financial Report

Fiscal Year 2007

FINANCIAL REPORT62 MANAGEMENT REPORT 62 Consolidated financial results 73 Risk factors 77 2008 financial calendar 79 General information 80 General information about Club Mditerrane 83 General information about the companys capital 88 General information about Club Mditerrane securities 90 Corporate governance 102 Chairmans report on the practices and procedures of the board of directors and internal control procedures 113 Statutory Auditors report on internal control 114 Fees paid to the Statutory Auditors 115 CONSOLIDATED FINANCIAL STATEMENTS 116 Consolidated statements of income 117 Consolidated balance sheets 118 Consolidated cash flow statement 118 Change in consolidated net debt 119 Consolidated statement of changes in equity (Note 12) 120 Notes to the consolidated financial statements 120 Note 1 - General information 120 Note 2 - Summary of significant accounting policies, scope of consolidation 128 Note 3 - Changes in scope of consolidation 128 Note 4 - Segment information 131 Note 5 - Goodwill and business combinations 132 Note 6 - Intangible assets 133 Note 7 - Property, plant and equipment 134 Note 8 - Non-current financial assets 135 Note 9 - Assets held for sale 136 Note 10 - Other receivables 136 Note 11 - Cash and cash equivalents 136 Note 12 - Share capital and reserves 137 Note 13 - Share-based payments 139 Note 14 - Pensions and other long-term benefits 141 Note 15 - Provisions 141 Note 16 - Income taxes 143 Note 17 - Borrowings and other interest-bearing liabilities 145 Note 18 - Financial instruments 148 Note 19 - Other liabilities 148 Note 20 - Employee benefits expense and number of employees 149 Note 21 - Operating income - Management of assets 149 Note 22 - Other operating income and expense 149 Note 23 - Finance cost, net 149 Note 24 - Share of income of associates 150 Note 25 - Earnings per share 150 Note 26 - Notes to the consolidated cash flow statement 151 Note 27 - Related party transactions 152 Note 28 - Commitments and contingencies 153 Note 29 - Scope of consolidation at 31 October 2007 157 Auditors report on the consolidated financial statements 158 Group structure at 31 October 2007 161 ADDITIONAL INFORMATION 162 Statutory Auditors special report on regulated agreements and commitments 165 Report of the board of directors on the proposed resolutions 169 Proposed resolutions

2007 ANNUAL REPORT

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MANAGEMENT REPORT1. Consolidated Financial Results1.1. FINANCIAL HIGHLIGHTS(in millions)

Other operating income and expense, corresponding to credit card costs, litigation and restructuring, represented a net expense of 21 million. Operating income stood at 14 million, reflecting an improvement in the leisure businesses and a lower contribution from

2006 Consolidated revenue Reported Like-for-like(1) EBITDAR - leisure (2) Operating income - leisureOf which business interruption insurance settlements

2007 1,727 1,727 244 332+2,8%* +3,4%**

the management of assets.1.2. BUSINESS REVIEW FY 2006 Number of customers (in thousands) Of which Club Med Of which Jet tours Of which Club Med Gym 1,685 1,328 286 71 FY 2007 1,639 1,324 243 72 1,727 1,367 119.4 12,477 8,536 68.4% 86.5 Change vs. FY 2006 -2.7% -0.2% -15.1% +1.1% +3.4% +5.7% +8.1% - 0.6% -0.3% +0.2 pt +7.7 %

1,679 1,670 229 2421

Operating income - management of assets Other operating income & expense Operating income Net income/(loss) Net debt

40 (29) 35 5 (294)

2 (21) 14 (8) (336)

Revenue like-for-like (in thousands) 1,670 Of which core business 1,292 Revenue like-for-like per hotel day (2) 110.4 Capacity in thousands of hotel days(2) Hotel days sold (in thousands)(2) Occupancy rate(2)

(1) At constant exchange rates and comparable scope of consolidation. (2) EBITDAR - leisure: Earnings before interest, taxes, depreciation, amortization and rents. * including a 3.3% increase in core business. ** including a 5.7% increase in core business.

12,550 8,560 68.2% 80.4

Consolidated revenue amounted to 1,727 million, an increase of 2.8% on a reported basis. Like-for-like revenue was up 3.4%, reflecting 4% growth in the first half and 2.8% in the second. The fourth quarter saw a strong 5.3% increase in revenue. Core business rose by 5.7% like-for-like. EBITDAR - leisure rose to 244 million from 229 million the previous fiscal year. Excluding the impact of business interruption insurance settlements in fiscal 2006, EBITDAR was up 16%. Operating income - leisure, at 33 million, showed a sharp increase, particularly after taking into account the fiscal 2006 impact of business interruption insurance settlements. Operating income - management of assets, corresponding to the revenues and expenses generated by the management of property assets, amounted to 2 million versus more than 40 million in fiscal 2006. The sharp decline stemmed from the cost of closing year-round Villages for renovation and a weaker contribution from disposals and asset refinancing transactions, which were unusually high in fiscal 2006. Borrowings were also affected, rising to 336 million at 31 October 2007, despite the decrease in average net debt to 370 million in fiscal 2007 from 432 million in the previous year.

RevPAB(1) per hotel day, like-for-like

(1) RevPAB: Total like-for-like Village revenue excluding tax and transportation/Available beds. (2) For the core business.

Like-for-like revenue per hotel day rose by 8.1%, with gains in every region. The 9 increase in revenue per hotel day was mainly attributable to the nearly 6 effect of the ongoing upmarket strategy, involving resegmentation of the Village base, the impact of the Bar & Snacking Included formula introduced in Asia during the year and the Confort la Carte offering of rooms in a higher comfort category. Capacity was down 0.6% overall for Club Med Villages, including a 4.5% decrease in Europe that was mainly attributable to the closure of Opio en Provence and La Pointe aux Canonniers for renovation. In the Americas, capacity increased 8.7%, with the reopening of the newly renovated Cancn Yucatn, Trancoso and La Caravelle Villages. In Asia, capacity was up by 3.6%. Club Med Gym reported a 3.5% increase in revenue. However, due to the membership system, business growth is better measured in terms of new subscriptions, which rose by a satisfactory 5.3% in value over the prior year.

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M A N A G E M E N T R E P O RT

1.2.1. CUSTOMERS

4 Trident capacity grew 30% compared to fiscal 2006 and 53% compared to fiscal 2005 to represent 42% of the total. The number of hotel days sold during the period was in line with fiscal 2006 at 8,536,000.FY 2006 Europe Capacity Occupancy rate Americas Capacity Occupancy rate Asia Capacity Occupancy rate Total Capacity Occupancy rate 8,142 72.3% 2,621 66.1% 1,787 52.7% 12,550 68.2% FY 2007 7,778 73.5% 2,847 62.0% 1,852 56.9% 12,477 68.4%

In fiscal 2007, the Group welcomed over 1,639,000 customers. The Villages business served 1,324,000 customers during the year, in line with fiscal 2006 and up for the first time in the summer months since 2001. The number of customers at 4-Trident Villages rose by 133,000 and by nearly 200,000 compared with fiscal 2005. These positive developments are key to the strategy to move upmarket. Jet tours served far fewer customers in fiscal 2007 as the upmarket strategy was pushed into higher gear, leading to plans to build four Eldorador hotels being removed from the catalogue. However, at the same time, the repositioning led to an 11% increase in the average price per customer, which is crucial to improving Jet tours future profitability.1.2.2. HOTEL DAYS - VILLAGES HOTEL DAYS BY OUTBOUND ZONE

Outbound zones generate revenue and sales costs (e.g. France, United Kingdom, Belgium, Canada...).(in thousands of hotel days sold)

The occupancy rate stood at 68.4% of available beds, an increase of 0.2 points from the previous year.FY 2007 6,450 1,253 833 8,536 Change -0.9% -2.8% +9.7% -0.3% 1.2.4. REVPAB (REVENUE PER AVAILABLE BED)(/hotel day)

FY 2006 Europe Americas Asia Total 6,511 1,290 759 8,560

Cumulative at 31 October (like-for-like) 2005 2006 2007 Change 2007 vs. 2006 +7.3% +1.9% +22.3% +7.7% Change 2007 vs. 2005 +17.0% +9.4% +42,2% +17.4%

HOTEL DAYS BY INBOUND ZONE

Inbound zones are where Villages are located and operated (e.g. France, Morocco, Polynesia, Mexico...).(in thousands of hotel days sold)

Europe Americas Asia Total Villages

77.4 72.2 57.2 73.7

84.4 77.5 66.5 80.4

90.5 78.9 81.3 86.5

FY 2006 Europe Americas Asia Total 5,885 1,733 942 8,560

FY 2007 5,717 1,766 1,053 8,536

Change - 2.8% +1.9% +11.8% - 0.3%

RevPAB: Total Village revenue excluding tax and transportation/ Available beds.

Revenue per available bed (RevPAB) is a key business indicator since it measures how well customers are embracing the upmarket strategy. In fiscal 2007, RevPAB rose by 7.7% to nearly 87 per hotel day. After rising by 7 per hotel day in fiscal 2006, RevPAB increased by an additional 6 in fiscal 2007.

1.2.3. OCCUPANCY RATE BY CATEGORY Thousands of hotel days by destination FY 2006 2 Tridents 3 Tridents 4 and 5 Tridents Other Total 418 5,435 2,626 81 8,560 FY 2007 266 4,698 3,511 61 8,536 Occupancy rate FY 2006 71.1% 70.7% 65.0% 34.0% 68.2% FY 2007 75.4% 70.0% 66.9% 38.0% 68.4%

Growth was attributable to all the upmarket initiatives and reflected advances across all zones.

2007 ANNUAL REPORT

63

1.2.5 FINANCIAL MODEL (at 31 october 2007)()

Fiscal 2007 revenue rose by 3.4% like-for-like and by 2.8% on a reported basis. The currency effect was a negative 23 million, due to the strength of the euro, while changes