These encouraging results were driven by a 7.7% increase in the number of hotel days sold and a rise in the occupancy rate to 72.3%, from 69.1% the year before. Broken down by destination, occupancy rate rose by 3.5 points to 75% in Europe-Africa, gained 5.9 points to 69.8% in North America and declined by 2.1 points to 63.4% in Asia.

Based on this initial positive impact of measures undertaken last summer, implementation of the strategic plan is proceeding as scheduled.

Financial Results

Business volume for the year amounted to FRF 9,024 million (EUR 376 million).  Consolidated revenues rose to FRF 8,384 million (EUR 1,278 million) from FRF 8,226 million (EUR 1,254 million) in fiscal year 1997.  On a like for like basis:  revenues rose by 5.5% over the year.  Most of the growth came from volume gains, attenuated by the deconsolidation of the City Club and the disposal of Club Med One, as well as by a negative currency effect due to the decline in Asian currencies against the French franc.

By region of customer origin, revenues from Europe-Africa rose 9.7% to 68.1% of the consolidated total. Revenues from North America (17.5% of the total) declined by 4.7% mainly as a number of major villages were closed for renovation in the second half. Revenues from Asia decreased 1.6% and accounted for 11.6% of the consolidated total.

Operating income rose by 32% to FRF 386 million (EUR 58.7 million) from the prior year's FRF 291 million before non-recurring items. This significant improvement was led by a strong second-half performance in Europe, where the plan is beginning to come into effect and yield initial results.

Net financial expense remained stable at FRF 161 million, while the net loss from equity companies amounted to FRF 1 million. The latter item no longer includes equity in earnings from the Punta Cana airport (FRF 12 million in 1997), which was sold last year. The FRF 24 million in exceptional income resulted primarily from the capital gain on the sale of the Club Med One cruise ship (FRF 27 million). Like income tax and amortization of goodwill, exceptional income cannot be compared with the prior-year figure, which was mainly comprised of exceptional provisions for contingencies and charges.

Group net income for the year amounted to FRF 171 million, compared with a Group net loss of FRF 1,294 million in fiscal 1997.

Implementation of the Strategic Plan

Club Mediterranee is continuing to implement its strategic plan in every aspect of its business.

1. Restoring the brand: Restore image to become incomparable again

A consistent, harmonious communication strategy has been applied worldwide. The new global campaign currently being developed in the Group's main European markets will be extended to other countries. It will be supported by a number of events, such as events marking the publication of new brochures, sports events and the development of village forums, as well as by the introduction of a new loyalty program. Club Mediterranee will also enter into participants agreements with other brands.

2. Refocusing the product, marketing and distribution: Strike hard and fast

The product range had been refocused on the middle market and its segmentation (from hut villages to four-trident resorts) has been clarified. The village renovation program is continuing apace, with 17 villages already refurbished, 9 in the process of renovation and over 40 scheduled for upgrading now through the end of 2000.  The distribution system has also been refocused and rationalized, with an emphasis on strategic markets.  Examples of these programs include a reduced rate phone number in France and agreements with Dertour in Germany, and with Neckermann in Belgium.  In addition, some number of sales offices have been closed in lower priority country markets.

The product itself has also been improved, with a greater variety of sports activities and higher quality entertainment programs.

3. Regaining price competitiveness with a fair price policy: improving sales

Initially implemented in selected European countries, the fair price policy and simplified pricing structure has involved lowering rates for certain periods of the year and certain villages, reducing the number of promotional campaigns and offering more competitive transportation rates.  A number of villages have also lengthened their seasons.  This strategy will gradually be extended to other regional markets, particularly North America.

4. Rationalizing management and organization: Delivering a profitable product

Rationalization programs have already been implemented in several areas. The number of North American locations has been reduced from five to two with the consolidation of marketing, operations and finance in Miami, leaving the phone reservation center still based in Scottsdale, Arizona.  The creation of a single European phone reservation center equipped with advanced technology will reduce the number of sites from seven to one.  In addition, village operating procedures have also been reorganized.

These are the initial results of an in-depth, Group-wide re-engineering program, which will be continued in the future. At the same time, implementation of the 1996 restructuring plan is also being pursued, with eight villages already sold or closed in addition to the disposal of Club Med One and of the deconsolidation of City Club in Vienna.

Outlook

Modernization of human resources

A Group-wide plan to adjust and modernize human resources will be implemented in collaboration with employee representatives.  In 1999, attractive voluntary outplacement incentives will be offered to around 100 head office employees aged 52 or older.  Seventy percent of these positions will either be reassigned to other employees or filled with new hires.  The plan will therefore encourage employee mobility, supported by an assertive training policy and the recruitment of new skills previously lacking in certain areas.  In addition, a pay-for-performance system will be implemented in 1999 for head office personnel.  It will be combined with negotiations on flexibility and reduction of the workweek, in line with French legislation requiring a 35-hour week.  The new legislation will be implemented at the head office as of January 2000.

Development

Resort capacity will be increased and enhanced to manage rising business volume, which is expected to continue trending upwards.  Positions in Europe and Africa will be consolidated with the opening of new villages in Meribel and Serre Chevalier in France, Djerba in Tunisia, and Taba in Egypt.  In addition, the Club is developing previously inadequately covered regions, such as Kabira in Japan, Holguin in Cuba and Punta Cana in the Dominican Republic.

Redeployment

The tour business will be developed through Club Med Decouverte, which will offer 58 tours in the 1999 summer season, compared with 39 in 1997.  The objective is for the Club to become a broad-range tour operator.  In 2000, the business base will be further redeployed towards the wider leisure and recreation market, with the opening of an initial unit in Paris in the spring.

In commenting on these results, Group Chairman Philippe Bourguignon said that, "The Club's change dynamic is now well underway, and has gained momentum since last summer. In France and certain other European countries, we've successfully applied our new marketing strategy designed to enhance accessibility to our villages by leveraging pricing and distribution. We are now launching a human resources modernization program that will improve the efficiency of both our employees and our organization.

"I am more than ever confident in the future of Club Mediterranee, and especially in our ability to meet the objective of FRF 700-750 million in operating income in 2000. We will see further earnings growth in 1999, with the extension of our strategy to our major markets, despite the impact of the Asian crisis and the temporary decline in capacity in the first half due to the renovation program."