ANNUAL REPORT 2005 - Fountain · Profile 1 President’s Message 2 CEO’S Message 3 Management and...

ANNUAL REPORT 2005

TABLE OF CONTENTS

Key numbers

Profile 1

President’s Message 2

CEO’S Message 3

Management and Corporate governance 5

Management report 9

Products and services: a total solution 13

Personnel and Distributors:

an effective network 19

FINANCIAL ANNUAL REPORT SECTION

Auditor’s report 23

2005 Consolidated annual accounts 25

Descriptive data and compliance report 32

Appendices to the 2005 consolidated

accounts 32

2005 Corporate annual accounts

(abbreviated version) 54

Fountain S.A.

VAT be 0412.124.393

Tel. +32 2 389 08 10 – Fax +32 2 389 08 14

website: www.fountain-group.com

a n n u a l r e p o r t 2 0 0 5 I f o u n t a i n

1

PROFILE

A COMPLETE LINE OF PRODUCTS AND

SERVICES

The Fountain Group is specialized in serving busi-

nesses of five to 15 people: small and medium-sized

businesses, sales offices, professional offices, etc.

Fountain enables them to offer their clients, visitors

and associates delicious hot and cold drinks, thanks

to its full-service business model. Fountain supplies

its customers with everything they need: distribution

machines, drinks, accessories (cups, stirrers, etc.) and

“little bonuses” such as individual portion control cups

for milk, sugar packets, chocolate squares, etc.

A WIDE RANGE OF PRODUCTS

Fountain offers a wide range of drinks to satisfy the

tastes of its customers: numerous kinds of coffee, tea,

hot chocolate, soup, and cold isotonic drinks. These

drinks come in different forms (fresh or freeze-dried

coffee in cartridges, capsules or single-serve portions)

and they are all carefully packaged in containers that

preserve their flavor.

EFFICIENT SERVICE

From the installation of machines to their maintenance,

and including order delivery, Fountain can count on the

efficiency and effectiveness of its network of distributors,

whether they’re subsidiaries of the Fountain Group

or independent, to ensure the satisfaction of its end

clients.

For its part, Fountain mobilizes its employees and

partners around a common business plan, and empha-

sizes professional development.

A PUBLICLY TRADED INTERNATIONAL

GROUP

Founded in 1972, today the Fountain Group has a

presence in 28 countries, counting 26 import companies

and more than 200 exclusive distributors.

In 2005, more than one million cups of Fountain drinks

were consumed every day!

Fountain is listed on the Brussels stock exchange

(Euronext, code FOU).

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CONSOLIDATED NET PROFIT

(in EUR million)

STOCK EXCHANGE CAPITALISATION

(in EUR million)

CONSOLIDATED TURNOVER

(in EUR million)

CONSOLIDATED OPERATING CASH-FLOW

(in EUR million)

Ordinary General Meeting of the Shareholders 2006 29th May 2006 on 10:00Capital reduction available for payment from Degroof, Fortis, ING 1st AugustAnnouncement of half-year results 2005 Mid-September 2006Announcement of annual results 2005 Mid-March 2007Ordinary General Meeting 2006 28 May 2007

FINANCIAL AGENDA

(excluding royalties) 2005 2004 2003 2002 2001France 65.9% 62.2% 58.1% 54.3% 53.1%Benelux 26.8% 28.5% 29.5% 32.8% 29.6%Scandinavia 4.0% 3.8% 5.6% 5.6% 5.9%United Kingdom 1.4% 1.1% 1.3% 1.7% 2.2%Czech Republic 0.5% 1.6% 1.9% 2.3% 2.6%Rest of the World 1.4% 2.7% 3.6% 3.3% 6.6%

SALES TURNOVER BREAKDOWN PER MARKET

(in EUR) 2005 IFRS 2004 IFRS 2004 2003 2002 2001

Equity per share 14,843 15,307 12,693 13,468 13,962 14,779Enterprise value per share 23,577 22,491 22,355 17,990 16,898 20,728Operating cash-flow per share 6,204 6,034 6,029 5,250 5,196 4,271Net profit per share 2,176 2,235 0.248 (0.429) (0.432) (1.389)Net cash-flow per share 4,838 4,564 4,057 3,083 3,246 2,639Price earning ratio (PER) x 10.00 x 7.72 x 69.45 x 30.32 x 21.13 x 8.71Capitalisation on Equity 146.5% 112.7% 135.9% 99.9% 65.3% 81.9%Capitalisation on EBITDA x 3.51 x 2.86 x 2.86 x 2.48 x 1.76 x 2.83Enterprise value on EBITDA x 3.80 x 3.73 x 3.71 x 3.43 x 3.25 x 4.85

KEY FIGURES PER SHARE AND FINANCIAL RATIOS

(in EUR) 2005 2004 2003 2002 2001Issued shares 1,615,960 1,615,960 1,615,960 1,615,960 1,615,960

Alloted stock options 134,545 134,545 134,545 90,145 90,145Warrants still available for exercise

69,865 76,625 98,965 55,085 58,205

TOTAL 1,685,825 1,692,585 1,714,925 1,671,045 1,674,165

NUMBER OF SHARES

(in EUR) 2005 IFRS 2004 IFRS 2004 2003 2002 2001

Gross dividend 0.00 0.60 0.60 0.44 0.32 0.00Net dividend 0.00 0.45 0.45 0.33 0.24 0.00TOTAL gross dividend 0.00 969,576 969,576 711,022 517,107 0TOTAL gross dividend on EBITDA 0.00% 9.94% 9.95% 8.38% 6.16% 0.00%Capital reduction 2.00

PAYMENT ON CAPITAL

KEY NUMBERS CONSOLIDATED MAIN FIGURES

(in thousands EUR) 2005 IFRS 2004 IFRS 2004 2003 2002 2001 2000 1999

Sales turnover 52,895 49,975 49,723 48,448 48,222 46,249 43,979 38,266Operating cash-flow (EBITDA)(1) 10,026 9,751 9,742 8,484 8,396 6,901 9,125 8,428Operating profit (EBIT)(2) 5,767 5,994 7,857 6,929 7,061 4,732 8,110 7,299Financial results (0.635) (0.721) (0.821) (0.973) (1,052) (1,115) (1,049) (0.974)Extraordinary results 0.000 0.000 (0.364) (0.311) 0.870 (0.115) (0.107) (0.910)Result before taxes(1) 5,132 5,273 6,672 5,645 6,879 3,502 6,954) 5,415)Taxes (1,573) (1,655) (2,002) (2,218) (2,968) (1,407) (2,613) (1,967)Goodwill depreciation(3) (2,035) (1,660) (4,713) (4,618) (4,608) (4,340) (3,922) (3,555)Profit after taxes 3,516 3,611 0.401 (0.694) (0.697) (2,245) 0.418 (0.107)Net cash-flow 7,818 7,375 6,555 4,982 5,246 4,264 5,356 4,578Capitalisation on 31 December 35,147 27,875 27,875 21,040 14,738 19,553 30,240 52,127Equity 23,985 24,735 20,512 21,052 22,562 23,883 27,107 27,408Net debt 2,953 8,470 8,250 8,031 12,569 13,942 11,119 10,714Enterprise value (EV) 38,100 36,345 36,125 29,071 27,307 33,495 41,359 62,841

(1) Recalculated in the IFRS presentation in order to exclude closing and reorganisation costs

(2) Excluding goodwill depreciation till 2004, included from 2004 IFRS

(3) Inclu

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(number of shares)

SG Capital Europe Fund I,LP 500,844 31.0%Electra Partner 179,193 11.1%Quaeroq SCRL 200,036 12.4%Public 735,887 45.5%

source: transparency statements received by the company

SHAREHOLDING (in 2005)

SG Capital Europe Fund I, LP is a private equity fund based in London

Electra Partners is an investment fund subject to French law, and a subsidiary of Electra Investment Trust

Quaeroq SCRL is an investment company subject to Belgian law

Euronext Brussels

Primary spot market, double fixing

1.615.960 issued shares

134,545 warrants allocated at the end of 2002, of which 64,680 can no longer be exerciced.

Code: BE 000 375 2665

Euronext code: FOU

Fountain was listed on the Brussels spot primary market in April 1999.

LISTING

a n n u a l r e p o r t 2 0 0 5 I f o u n t a i n a n n u a l r e p o r t 2 0 0 5 I f o u n t a i n

2


A NEW MEDIUM-TERM GOAL

In accordance with our forecasts, 2005 was a good

year, as evidenced by the increase in our sales turnover,

which increased to 52.9 million Euros, as compared

with 50.0 million in 2004, as well as in our EBITDA of

10.0 million Euros (+ 2.8%). These numbers are all the

more satisfying since they were affected by last Fall’s

discontinuation of the collaboration with Nespresso

France. For reasons of medium-term value creation,

we have chosen not to renew our contract, which was

expiring.

The end of this collaboration, which accounted for

approximately 40% of the Group’s consolidated sales

turnover and operational cash flow, coincided with the

partial transfer of our Nespresso clientele, resulting

in financial compensation. Clearly, our medium-term

objective is to regenerate the income realized in 2005

in the espresso market segment, assisted by our

new partnership with illycaffè, whose products enjoy

an excellent brand image. The Group was awarded

exclusive distribution of illy’s business product line in

France, Belgium and the Netherlands. A new challenge

for Fountain and its distributors!

In 2005, Fountain also implemented the Lippens Code

of Corporate Governance and the new IFRS accounting

standards.

In addition, the Group continued to reduce its debt:

by the end of 2006, Fountain will be completely debt-

free and will at that point be able to undertake new

planning for external growth.

Concerning stock dividends, the Board of Directors,

confident in the Group’s ability to generate substantial

operational cash flows in the future, and taking into

account that the Group will be debt-free in the near

future, proposed the redistribution to shareholders of

the profits from the sale of French business accounts

to Nespresso.

The Board will therefore submit for approval to the

Extraordinary General Meeting of Shareholders, the

repayment of two Euros per share, in the form of a

reduction of the company’s capital in the amount of

3.2 million Euros.

The Board offers its warmest thanks to all of Fountain’s

shareholders and partners for the confidence that you

have placed in us, and for your support in our future

endeavors.

Pierre Vermaut,

President

PRESIDENT’S MESSAGE

3


BECOMING A SERVICE-ORIENTED BUSINESS

The market is changing, and so is Fountain! The year

2005 was distinguished by a change in the Group’s

Mission Statement. We are no longer oriented towards

being an industrial manufacturer of machines and

products; instead, we’ll focus on our service offerings

related to the consumption of coffee and other drinks

in small and medium-sized professional settings.

As a result, Fountain has chosen to subcontract all

of its machine production. However, in collaboration

with our industrial partners, we will still select the

machines and products that best meet the specific

needs of our clients. To fully meet their expectations,

we have developed a comprehensive product line,

including a wide variety of drinks and an extensive line

of machines, accessories and «little bonuses» (cream,

sugar, cookies, etc.) bearing the Fountain name. The

common denominator in this product line will be an

innovative new cup, created especially for the Group.

It will be launched during the second half of 2006.

We are very satisfied with the integration of the

companies that joined the group at the end of 2004;

they have already made a positive contribution to

the year’s cash flow. To reinforce team spirit and

the feeling of belonging to the Group, as well as the

effectiveness of our sales network, Fountain Academy’s

training sessions were expanded to include all sales

teams in our primary markets. We also developed new

Web-based tools to optimize our distributors’ ordering

process.

2005 was also a transitional year, following the end

of our exclusive Nespresso Professional distribution

contract in France, and the preparation for launching

an espresso offering in partnership with illycaffè in

France and Benelux.

In addition, in order to assess our strategy, an in-

depth study of the market for hot drinks, and of the

appropriateness of our product and service line and

our organization is in process, in collaboration with the

firm Bain & Co.

The Management Committee joins me in thanking

all of Fountain’s associates and distributors for your

commitment to our business plan.

Pascal Wuillaume,

CEO

CEO’S MESSAGE

5


Pierre Vermaut

President

Director (Independent Director as of September,

2005).

Pierre Vermaut has chaired the Board of Directors of

the Fountain Group since February, 2000. He is also a

corporate officer.

Jean Ducroux

Director

Jean Ducroux is President and CEO of Electra Partners

Europe SA (France) and a corporate officer.

Alain Englebert

Independent director

Alain Englebert is a corporate officer.

Regnier Haegelsteen


Regnier Haegelsteen is Managing Director of Banque

Degroof (Belgium) and a corporate officer.

Bruno Lambert

Director

Bruno Lambert is Director of SG Capital Europe, Ltd

(London) and a corporate officer

Paul Lippens


Paul Lippens is President of the Groupe Sucrier

(Belgium) and a corporate officer

Philippe Renié

Director

Philippe Renié is Director of SG Capital Europe Advisors

Limited (Paris) and a corporate officer.

Philippe Sevin

Director

Philippe Sevin is Director of SG Capital Europe, Ltd

(London) and a corporate officer.

The ICML S.A. corporation, represented by Mr. Alain

Englebert, functions as the Secretary of the Board of

Directors.

The Board of Directors met six times in 2005.

The start and end dates of terms are listed in the table

on page 41.

Name Sessions of

Board of

Directors

Sessions of

Audit

Committee

Sessions of

Nominating/

Compensation

Committee

P. Vermaut 6 2 2

A. Englebert 6 2

R. Haegelsteen 5

P. Lippens 6 2 2

B. Lambert 5 2 2

P. Renié 5

P. Sevin 5

J. Ducroux 2

MANAGEMENT AND CORPORATE GOVERNANCE

BOARD OF DIRECTORS

6

(1) (2) (3) (4) (5) (6)

THE MANAGEMENT COMMITTEE

The Management Committee is not a management entity

according to Article 524 bis of the Corporate Code.

Pascal Wuillaume (3)

CEO, joined the Group in September, 2002

Michel Malschalck (2)

CFO, joined the Group in September, 2004

Franck Hogie (1)

Distribution network manager for France, joined the

Group in February, 2000

Sorin Mogosan (4)

Consumables purchasing and production manager,

joined the Group in 1985

Michel Tulkens (6)

Machine production manager and distribution network

manager for territories outside France, Belgium and the

Netherlands, joined the Group in the summer of 2003

Jean-François Buysschaert (5)

Distribution network manager for Belgium and the

Netherlands, joined the Group in September, 2004

CORPORATE GOVERNANCE

The Group complies with the provisions of the Lippens

Code, with the exception of divulging individual com-

pensation. In order to respect the privacy of those

concerned, individual compensation for the directors

and the CEO will not be divulged.

Compensation Committee

A Compensation Committee, made up of Mr Pierre

Vermaut, Mr Bruno Lambert and Mr Paul Lippens, directors,

defines the compensation policy for the members of the

Management Committee.

Compensation for the Board of Directors: 157,607 Euros.

Compensation for the Management Committee:

1,088,246 Euros

Nominating Committee

A Nominating Committee is included in the Compensation

Committee. Its task is to formulate recommendations

to the Board of Directors concerning the nomination of

directors and of members of the Management Committee.

The Nomination/Compensation Committee met three

times in 2005.

Audit Committee

The Audit Committee, which brings together Mr Pierre

Vermaut, Mr Bruno Lambert, Mr Paul Lippens and

Mr Alain Englebert, directors, assists the Board of Directors

in carrying out its role of overseeing financial matters,


7

conducting internal and external inspections and adhering

to applicable laws and regulations. It meets at least twice

per year to review the semi-annual and annual accounts.

A meeting may be called by any one of its members.

The CEO, CFO, the external auditors and any member

of management or corporate control may be invited

to participate in the Audit Committee’s meetings. The

Committee met twice during the 2005 fiscal year. During

these meetings, the Audit Committee examined the semi-

annual and annual accounts, the application of the new

IFRS accounting standards and the Code of Corporate

Governance.

Internal and External Audit

The Board of Directors’ desire for clarity and transparency

led it, in light of the large number of subsidiaries within

the Group, to implement a two-part external inspection

standard. At the local level, each company within the Group

is subject to an external audit every six months, to satisfy

Belgian legal requirements for a group listed on Euronext.

Likewise, at the Group level, the consolidated accounts are

reviewed by a group auditor, the B.S.T. Corporate Auditors,

an independent local auditing firm. The external inspections

carried out by local auditors is completed directly with the

financial directors for the countries concerned. The existence

of local auditors is also appreciated by the group auditor,

who, for each audit, defines the minimum inspections to

be carried out. The rules of internal control in force within

the Fountain Group require the two-signature rule. These

powers of signature are most often in the hands of local

directors and their financial directors. In accordance with

the Code of Corporate Governance, the need to create an

internal audit position was evaluated during 2005. Given

the size of the company and its risk profile, it was decided

to entrust the task of internal auditing to the Corporate

Finance Department, which, for these specific tasks, will

report directly to the Audit Committee.

Warrants and stock options

The company is committed to reinforcing the motivation

and loyalty of its managers by involving them as closely

as possible in value creation as well as in sharing the risks

and opportunities of its shareholders. Therefore, Fountain

allocated 148,801 warrants to certain staff members

holding management positions within various companies

in the Group. Each of these warrants confers the right to

one share of the Fountain Corporation. Among this total,

44,400 warrants (defined in plan E), were decided upon by

the Annual Meeting of Shareholders on May 26, 2003. The

remaining 104,401 warrants come from the initial B and D

plans. Of the 148,801 warrants allocated, only 69,865 of

them are still exercisable. The others are warrants rendered

null and void by the expiration of their period of vesting

or exercise. Among the exercisable warrants, 3,700 must

be vested during the two upcoming years. These warrants

have different exercisable values depending on their date

of allocation. These values range from 14.00 Euros to

31.14 Euros per warrant. Their first exercise period was

in June, 2004. They are only exercisable for 15 days per

year.


9


Ladies and gentlemen,

We have the honor of presenting to you our manage-

ment report, including the consolidated and statutory

accounts for the Group for the fiscal year 2005, as

well as the annual consolidated accounts closed on

December 31, 2005. In addition, we submit for your

approval the proposal for allocation of income as well

as the discharge of our mandate for the completed

fiscal year.

The figures presented are in accordance with the

accounting method and evaluation criteria as set

forth by the IAS/IFRS standards. The fiscal year 2004

has been withdrawn in order to show an effective

comparison.

1. Consolidated income 2005

The Fountain group’s consolidated net income for the

fiscal year 2005 amounts, after taxes, to 3,516 K Euros,

2.6% less than for the previous fiscal year (3,611 K

Euros); this income takes into account tax costs of

1.6 million Euros.

The income for 2005 was notably impacted by the

costs of restructuring the French business entities

(0.5 million Euros), primarily related to the disconti-

nuation of Nespresso business operations, as well

as by considerable commercial costs for launching

the new espresso line in partnership with illycaffè

(0.4 million Euros).

As in 2004, the Group benefited from considerable tax

refunds in Holland (0.3 million Euros).

The consolidated operational cash flow amounted to

10.0 million Euros, or 19% of the overall sales turnover,

as compared with 19.5% for 2004 (9.8 million Euros).

2. The Group’s business operations in 2005

The Group’s consolidated sales turnover for 2005

is 52.90 million Euros, for an increase of 5.8% as

compared with 2004 (49.72 million Euros).

The increase in the sales turnover is primarily the result

of the full-year integration of the companies acquired in

2004 (Fountain Industries Brussels integrated as of the

second half of 2004, Cup Express and Orga Distribution

integrated as of 2005). At the end of April, the Group

sold its distribution subsidiary in the Czech Republic

to a local distributor. This transfer had no significant

impact on the Group’s accounts. The group undertook

merger and restructuring operations with respect to

its investments in order to simplify its organizational

structure and to take advantage of fiscal integration in

France; this had no impact on income.

Belgium, France and the Netherlands represent the

majority of consolidated sales.

During 2005, the Group reached an agreement with

Nestlé concerning the termination of operations related

to Nespresso Professional in France. This agreement,

whose specifics were included in a publication at the

time, will allow the Fountain Group to quickly reposition

MANAGEMENT REPORT

MANAGEMENT REPORT OF THE BOARD OF DIRECTORS

TO THE ANNUAL MEETING OF SHAREHOLDERS, MAY 29, 2006

1010


itself in the French espresso market and to reinvest

in internal and external growth initiatives related

to its primary mission of distributing drinks within

businesses.

Simultaneously, during the fourth quarter of 2005,

the Group launched sales of its new espresso product

line in partnership with illycaffè. This offer is clearly

successful.

3. Evaluation rules

For the first time, the Group implemented the IFRS

evaluation rules in 2005.

In accordance with the IFRS rules, the Group carried out

impairment tests on its assets. These did not result in

any asset adjustments.

A legal action opposes the Fountain Distribution Center

and the French fiscal authorities, for a maximum amount

of 0.2 million Euros. Based on the risk assessment

completed by our advisors, this legal action did not result

in any projection.

4. Research and Development

Additional costs incurred during the 2005 fiscal year

amounted to 0.4 million Euros and are related solely to

development costs.

5. Absence of conflict of interest

During the 2005 fiscal year, the Board was not required to

make any resolutions related to the provisions of Articles

523 and 524 of the Corporate Code.

6. Items related to Capital

The total number of securities representing the Fountain

S.A. corporation’s capital was 1,615,960 on December

31, 2005.

The sale of warrants in force on this date confers the right

to the subscription of 69,865 new shares (of the 98,965

warrants allocated, 29,100 are no longer exercisable

owing to the departure of their beneficiaries.)

7. Important events occurring after the closure of

the fiscal year

The Fountain Group announced in January, 2006 that it

intended to subcontract the production of its machines,

and therefore to close its production unit in Great Britain

at the end of 2006.

8. Perspectives on 2006

The launch of the illycafè line in France will not

11


compensate, in 2006, for the discontinuation of Nespresso

business activities. The most recent financial projections

confirm a consolidated sales turnover on the order of 38

million Euros for 2006 and an EBITDA of between 5 and

5.5 million Euros.

This income takes into account expenses of almost

2 million Euros related to substantial financial, commercial

and human resources dedicated to the development of the

new espresso product line in partnership with illycaffè,

as well as the strategic study undertaken with Bain.

However, the Board of Directors feels that to its

knowledge, there are no other significant risks and/or

uncertainties related to changes in business, income and

the overall financial situation.

9. Reduction of capital

In light of the financial results under review, the Board of

Directors proposes to the Annual Meeting of Shareholders

to go forward with a reduction of capital with the goal of

distributing a net amount of 2 Euros per share. This

reduction of capital will affect only capital that is paid

up and previously subscribed using cash or in-kind

contributions. Consequently, the Board of Directors will

propose to the Annual Meeting of Shareholders not to

distribute any dividends for the 2005 fiscal year. As a

reminder, for the 2004 fiscal year, a gross dividend of

0.60 Euros per share was distributed.

10. Allocation of statutory income

During the fiscal year, the company’s statutory income

amounted to 5,345,747.34 Euros. The income realized

during the previous fiscal year was 7,921,065.74 Euros,

and income to be allocated as of December 31, 2005 was

13,266,813.08 Euros.

Conditional upon your approval, the Board proposes to

allocate the income as follows:

Dividend: 0 Euro

Contribution to legal reserve: 267,287.37 Euros

Carried forward: 12,999,525.71 Euros

11. Miscellaneous

No additional fees were paid during the 2005 fiscal year

to either the Statutory Auditors (SCPRL Linet & Partners)

or the Auditor assigned to examine the consolidated

accounts (SCPRL B.S.T., Corporate Auditors).

We kindly ask you to familiarize yourselves with the

consolidated annual accounts closed on December 31,

2005, to approve the annual statutory accounts and the

proposed allocation of income, to discharge us of our

mandates for the 2005 fiscal year, and to do the same

for the Auditors.

Board of Directors

March 6, 2006

NB: A complete copy of the text of the statutory management report may be obtained upon request from the company’s headquarters.

13


Thanks to its high-quality products and machines and

attentive service provided by its distributors, Fountain

allows its end clients to offer coffee, and many other

hot and cold drinks, to their own clients and staff.

This occurs under the best possible conditions, since

Fountain supplies everything its clients need related

to beverage service, from drinks to cups, along with

sugar and milk; Fountain also takes care of machine

maintenance.

In 2005, the Group’s mission evolved: now, Fountain

sees itself above all as a service corporation. This is

why Fountain is no longer producing machines. Future

machines will be selected from the international

market, then adapted for Fountain and produced by

fi rst-quality industrial partners. Thus, Fountain will be

better able to follow technological changes and allow

its clients to benefi t from them.

Among the Group’s end clients are small and medium-

sized businesses, banks, networks of franchised stores,

salespeople, medical offi ces, etc. The core target mar-

ket is professional settings with 5 to 15 people.

To satisfy this very diverse clientele, the Group offers

three families of products.

ESPRESSO

Espresso, the top of the line market segment, is

growing. For clients who are seeking the nec plus ultra

in coffee, Fountain offers pre-packaged fresh coffee.

Since the discontinuation of its collaboration with

Nespresso France at the end of 2005, Fountain has

been working exclusively with illycaffè, whose products

are very much enjoyed by coffee lovers.

The machines accomodate three grinds of coffee, from

fi ne to coarse. These are recognizable by the color of

the capsules: black for a very fi ne Italian coffee, red

for robust coffee, blue for a lighter coffee and green

for decaffeinated.

To reinforce the appeal of illy’s products, Fountain has

improved its line of accessories. A “Welcome Kit,” given

to new clients, includes coffee samples, cups, stirrers

PRODUCTS AND SERVICES: A TOTAL SOLUTION

CHOICE AND QUALITY

14

and sugar packets. Small porcelain cups and large

collectable cups with the illy insignia are also given

out.

An accessory display shelf, currently being produced,

will soon be available.

Fountain has also thought of its distributors: they

can access materials for trade shows, as well as

promotional posters and vehicle decorations with

the Fountain and illy logos. And let’s not forget their

training opportunities at “illy Academy” the new arm

of Fountain Academy.

FOUNTAIN’S PRODUCTS

For those who want a combination of high quality and

variety, Fountain offers a large choice of freeze-dried

drinks in cartridges. Easy to use, these cartridges have

the advantage of being extremely hygienic and mess-

free, since the product is never handled. This allows

the consumer to customize his or her drink by adding

more or less water.

Coffees

Coffee consumption accounts for three out of four

Fountain drinks. To satisfy everyone’s tastes, Fountain

has developed a palette of 20 flavors, separated into

four families that are recognizable by the shade of their

cartridge color.

- full-bodied dark roast Espresso coffees (Espresso

Roma, Black Gold, Café do Brazil, etc.),

- medium roast mocha-type coffees (Classic, Orena

and Max Havelaar mochas, Extra Filter and Decaf).

- light, delicately flavored coffees (Colombia, Dessert,

Aroma and Gold) and

- specialty coffees: having anticipated a new trend

toward gourmet coffees, Fountain increased its line

of specialty coffees, which are especially enjoyed by

young consumers (Cappuccino, Mochaccino, Viennese

Coffee and Caffé Latte).

To go along with this growth, two specialty coffees were

introduced in September, 2005: Vanilla Cappuccino and

Caramel Cappuccino. These flavors met with strong

success.

The exquisitely designed “Cube” machine, to enjoy authentic Italian coffee.


15

Hot drinks

For variety, four types of hot chocolate (Belgian

superior, Swiss, Dutch, Luxus) and six teas (Plain,

Darjeeling, Lemon, etc.) are available.

For a light bite to eat, consumers can choose between

some 10 soups, such as tomato, vegetable, pea,

chicken, minestrone, etc. In September, the new wild

mushrooms soup was very well received and has been

brought into the product line. Also in September, the

limited edition curry soup was a real success, especially

in Belgium and Holland, where clients are eagerly

awaiting the next installment of this seasonal offering.

This initiative has allowed us to increase sales.

Cold drinks

When the weather is warm and consumption of hot

drinks decreases, cold drinks step in. This is a segment

of the market that allows for a healthy growth

margin.

Introduced in the Spring of 2005, tropical fruit and

grapefruit isotonic drinks quickly found their niche in

the cold drink line: in 2005, they ranked just behind

peach ice tea and iced orange drink. These isotonic

drinks contain four mineral salts and 10 vitamins; they

regulate the body’s hydration and increase stress-

resistance. These help professionals stay at their best.

Ice cappuccino, ice chocolate, ice lemon and ice

blackcurrant round out this product line.

Cartridge machines

Many machines can accommodate Fountain cartridges.

Distributors suggest a certain machine based on the

client’s needs.

The Classic (with 2, 4, or 6 cartridges) and the Premier

(with 4 or 6 cartridges, as well as an electronic water

spigot) use the principal of combining water with the

freeze-dried beverage.

The Creamy is more automated. It offers a choice

between a small or a large cup, and delivers a creamy

coffee that is whipped inside the machine; there is also

space for four cartridges.

The Table Tops, large semi-automatic machines, are

recommended for larger professional settings, with

15 to 50 people. They distribute up to eight different

Flavored coffees and wild mushrooms soup, launched in September, 2005, met with great success.


16

drinks packaged in large cartridges and can be hooked

up to a filtered running water supply and equipped with

a coin slot. They are a demonstration of Fountain’s

eagerness to grow with its clients. The Symfony Table

Top is specifically oriented toward the hotel, restaurant

and catering industry as well as on-site cafeterias.

Fresh coffee

Fresh ground coffee, packaged in single servings

(or “pads») was introduced in 2005 to meet the

needs of a Fountain’s customers who use this popular

technology in their homes.

The new Momento machine brings together fresh

coffee in single servings and four selected Fountain

cartridges, while the Ottimo machine handles whipped

coffee, cappuccino and hot chocolate.

THE BASICS

For clients who want simplicity and low cost, Fountain

offers packs of loose freeze-dried drinks to be inserted

into larger vending machines (for 50 people).

Four kinds of coffee (espresso, mocha, premier and

decaf) are available, as well as one hot chocolate and

milk. To round out this product line, new products such

as a second hot chocolate, a soup and a tea are planned

for 2006.

ACCESSORIES AND “LITTLE BONUSES”

No longer do clients have to worry about using different

suppliers to purchase milk, sugar, chocolate or cookies

to go along with their coffee, or to obtain supplies of

cups and stirrers. For the convenience of its end clients

and distributors, Fountain brings together all of these

necessary supplies in its logistical center in Maubeuge,

France.

A new line of individual serving packages of fresh coffee was launched in the second half of 2005.


17

In order to strengthen its image, in 2005 Fountain

debuted new packaging for its milk portion control

cups, sugar packets, creamers, sugar cubes, etc. which

are sold under its own brand name.

The chocolate bar product line includes dark chocolate,

milk chocolate, chocolate with crispy puffed rice, and

chocolate with cacao beans.

For those with a sweet tooth, Fountain also offers

cookies, chocolate-covered almonds, puffed rice bars,

etc.

Another “little bonus” is croutons to accompany

Fountain’s soups.

In the accessories department, Fountain has come

out with decorated mugs, a four-cartridge rack for

the Holland market, and has also started design of a

unique bell-shaped cup (see text box). The fi rst step in

enjoying a Fountain drink, this cup will draw attention

to our products.

A unique cup

Always looking for innovations to distinguish

itself from the competition, Fountain called on

an architect-designer to designed a completely

new cup that would be instantly recognizable.

Based on the profi le of the traditional Italian

coffee cup (tapered at the top and bottom), this

cup is made up of a reusable dark grey cup-

holder with the Fountain logo, and a disposable

plastic cup that is clipped into the holder. The

cone-shaped cup can’t stand up on its own,

without its holder. Thus, consumers won’t be

able to do without their Fountain cup holder,

and will immediately identify our products.

The production of this new cup will be launched

during the second half of 2006.

Grégoire Wuillaume, Concept and design


New packaging for “little bonuses”

19


The Cup Express S.A. (France) teams and its Paris-

area distributor Orga Distribution S.A., companies that

were acquired at the end of 2004, have been welcomed

into the Group: the industrial branch joined together

with Braine-l’Alleud, while the cartridge distribution

branch kept its own network. This two-part integration,

completed on May 1, 2005, generated important

synergies.

As the quality of human resources is a determining

factor in the success of a service corporation, Fountain

is committed to recruiting high-value associates.

In particular, this includes young and talented

professionals who are attracted to the Group’s light

and responsive structure, as well as its desire for

growth and innovation.

The position of Supply Chain Manager, established

in 2004, contributed notably this year to optimizing

the production and supply chain for distributors.

Everything possible was done to centralize Fountain’s

products in the Maubeuge logistical center, from which

all shipments originate.

For their part, the directors of marketing and information

technology benefited from new technologies to bring

Fountain closer to its geographically diverse clientele:

websites for each country were finalized; enabling

clients to browse the available product line on the

Web, and new visitors looking for a supplier can easily

find a local distributor. A publicity campaign was also

completed with the Google search engine- Fountain’s

website was highlighted in the search results for the

keyword “coffee machine”.

STRUCTURE AND LOCAL SERVICE

The Fountain network is made up of 200 regional

distributors, whether they are members of the Group

or independent; they span 28 countries.

In accordance with the Fountain concept, the

distributors must have a sales and customer service

team. The sales team is tasked with sales prospecting,

selecting the machine that best meets the client’s

needs, and installing this machine. The customer

service team handles direct contact with clients, and is

responsible for being available to clients and bringing

their comments to the Group’s management team.

In this way, each client has a relationship with an

individual sales and service representative. Regular

visits (every four to five weeks) allow the representative

to advise the client and let them know about new

products and promotions, to refresh supplies and to

check that machines are in good working order. This

personal relationship explains clients’ exceptional

loyalty to the Fountain concept.

PERSONNEL AND DISTRIBUTORS: AN EFFECTIVE NETWORK

INTEGRATION AND OPTIMIZATION

20

A SHARED BUSINESS PLAN

Fountain distributed its updated Mission Statement:

to position itself as a service provider and not as an

industrial group. Excellent service to clients is its

hallmark, as evidenced by its slogan “service first.”

To share its business plan with its distributors, who are

its ambassadors to the end client, Fountain increased its

training sessions. Created in 2004, Fountain Academy

opened its doors to all types of salespeople this year:

machine salespeople, but also product salespeople and

telephone salespeople. Specific sessions concerning

the management of a distributorship also took place. In

addition, illy Academy was also implemented beginning

in January 2006, to accompany the discontinuation of

the Nespresso partnership in France, and to mark the

start of the contract with illycaffè.

In addition, as in past years, a Convention brought

together distributors and Fountain’s teams. This

served as an occasion to explain the Group’s strategy,

to strengthen ties between the two groups, and to

exchange helpful tips (see text box).

TRAINED DISTRIBUTORS

In order to provide the market’s best network, to

reinforce its brand image with end clients and to attract

new clients, Fountain trains its distributors in several

ways:

- Through training sessions to increase the effective-

ness of sales and management;

- Through attractive marketing collateral: such

as decorations for delivery vehicles that convey

Fountain’s visual image, or the modular booth that

attracts visitors during trade shows.

- Through attractive packaging and smart accessories

that meet consumers’ needs.

- Through the development of www.fountaindealers.

com, an extranet tested in 2005 by Fountain First and

Fountain Brussels, which will allow dealers to place

orders on line, thereby optimizing our logistics chain.

On this web portal, dealers will laso find product

information sheets, usage instructions for machines,

information on parts, machine maintenance, an image

bank, new editions of the Fountain News magazine,

etc.

“The modular booth clearly shows what we sell and projects a fresh image that attracts many prospective customers. Thanks to this booth, we sold twice as many machines as last year at the Copenhagen show.»

Morten Haurbach, Fountain Denmark


21

Fountain trains its distributors through attractive marketing collateral: such as decorations for delivery vehicles that convey Fountain’s visual image.


MOROCCO CONVENTION

The 2005 Convention was held last October

in Morocco. For fi ve days, it brought some 100

participants together. After touring Ouarzazate and

its small market district, a plenary session allowed

management to explain the Group’s mission and

strategy, to present the Group’s fi nancial situation,

to introduce illy’s philosophy and to announce the

upcoming launch of the automated Web-based

ordering tool.

After this came a driving tour of the desert in four-

by-fours decorated in the Fountain colors, and

an overnight in the magnifi cent Flint oasis, which

allowed precious time to strengthen contacts and

reinforce the the participants’ commitment to the

shared business plan.

Next, participants traveled to Marrakesh

where sessions on the “Global Concept”

and Fountain’s product and service line

were held. Finally, the trip concluded

with the awarding of 9 Fountain Trophies

to reward the largest growth in sales,

highest total sales turnover, etc.

22





Appendices to the 2005 consolidated accounts 32



23


Ladies and Gentlemen,

In accordance with the legal and statutory requirements,

we report to you on the performance of the audit

mandate which has been entrusted to us.

This report concerns the consolidated financial

statements of the Group Fountain.

We have audited the consolidated financial statements

for the year ended December 31, 2005, prepared in

accordance with the legal and regulatory requirements

applicable in Belgium, and which show a balance sheet

total of 47.522.189,82 EUR and a profit for the year

of 3.516.294,46 EUR. We have also carried out the

specific additional audit procedures required by law.

The statutory financial statements of the companies

included in the consolidation have been audited either

by their statutory auditors or by external certified

public accountants. We have checked their qualification

and their independence. Our opinion is based on their

reports.

The preparation of the consolidated financial statements

and the assessment of the information to be included in

the consolidated directors’ report, are the responsibility

of the Board of Directors.

Our audit of the consolidated financial statements

was carried out in accordance with the auditing

standards applicable in Belgium, as issued by the

Institut des Reviseurs d’Entreprises / Instituut der

Bedrijfsrevisoren.

Unqualified audit opinion on the consolidated

financial statements

The above mentioned auditing standards require that

we plan and perform our audit to obtain reasonable

assurance about whether the consolidated financial

statements are free of material misstatement.

In accordance with those standards, we considered the

Group’s administrative and accounting organisation,

as well as its internal control procedures. Company

officials have responded clearly to our requests for

explanations and information. We have examined,

on a test basis, the evidence supporting the amounts

included in the consolidated financial statements. We

have assessed the accounting policies, the consolidation

principles, the significant accounting estimates made

by the company and the overall consolidated financial

statement presentation. We believe that our audit

provides a reasonable basis for our opinion.

In our opinion, taking into account the legal and

regulatory requirements applicable in Belgium, the

consolidated financial statements for the year ended

December 31, 2005 give a true and fair view of the

Group’s assets, liabilities, financial position and results

of operations.

F INANCIAL ANNUAL REPORT SECTION

AUDITOR’S REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005 TO THE SHAREHOLDERS MEETING

OF THE COMPANY TO BE HELD ON MAY 29, 2006

24


Additional certifications and information

We supplement our report with the following certifi-

cations and information which do not modify our audit

opinion on the consolidated financial statements:

• The consolidated directors’ report includes the

information required by law and is consistent with the

consolidated financial statements. We are, however,

unable to comment on the description of the principal

risks and uncertainties which the Group is facing,

and of its situation, its foreseeable evolution or the

significant influence of certain facts on its future

development. We can nevertheless confirm that

the matters disclosed do not present any obvious

contradictions with the information of which we

became aware during our audit.

Brussels, April 12, 2006.

BST Réviseurs d’entreprises,

S.C.P.R.L. de Réviseurs d’Entreprises,

represented by Pascale TYTGAT,

Statutory Auditor.

25


2005 CONSOLIDATED ANNUAL ACCOUNTS

The Fountain Group’s annual accounts are presented alongside those of the previous financial year. They are in Euros.

Balance Sheet (before allocation) note 2005 2004

ASSETS

I. NONCURRENT ASSETS 26,080,816.62 28,744,891.94

1. TANGIBLE FIXED ASSETS 3 2,096,501.76 2,604,918.64

1.1 Tangible fixed assets in progress 15,273.00 166,565.99

1.2. Land and buildings 538,520.51 642,342.94

1.3. Plants, machinery and equipment 469,362.56 688,193.72

1.4. Motorized vehicles 68,080.59 107,890.18

1.5. Fixtures and incidental charges 791,457.78 614,892.70

1.6. Leasehold improvements

1.7. Other tangible fixed assets 213,807.32 385,033.11

2. Investment property

3. Intangible fixed assets 2 22,210,083.94 24,481,629.99

3.1. Goodwills 18,981,341.56 20,250,721.59

3.2. Other intangible fixed assets 3,228,742.38 4,230,908.40

4. Biological assets

5. Investment in affiliated companies

6. Investment in associated companies

7. Investment in joint ventures

8. Investments at equity 142,785.41

9. Deferred tax assets 1,232,144.37 1,013,966.47

10. Other financial fixed assets 346,860.65 468,932.58

10.1. Shares 4,6 138,959.71 139,610.93

10.2. Securities, other than shares

10.3. Loans 4,6 21,253.77 110,319.26

10.4. Other financial assets 6 186,647.17 219,002.39

11. Noncurrent hedging assets

12. Trade and other receivables 195,225.90 32,658.85

II. CURRENT ASSETS 21,441,373.21 19,065,557.97

16. Noncurrent assets and assets held for sale 20 427,197.00 568,864.80

17. Inventory 9 3,988,653.81 4,650,043.94

18. Other financial current assets 6,4 775,744.63 204,754.54

18.1. Shares

18.2. Securities, other than shares 475,455.92 75,377.12

18.3. Loans

18.4. Other financial assets 300,288.71 129,377.42

19. Current hedging assets

20. Current tax receivables 842,055.85 976,727.40

21. Current trade and other receivables 8,830,071.04 6,535,923.42

21.1. Receivables 10 7,994,963.81 6,385,911.50

21.2. Debt resulting from leasing

21.3. Other receivables 835,107.23 150,011.92

22. Current advance payments

23. Cash and cash equivalents 5 6,095,601.09 5,709,662.60

24. Other current assets 482,049.79 419,581.27

TOTAL ASSETS 47,522,189.82 47,810,449.96

26


(before allocation) note 2005 2004

CAPITAL AND LIABILITIES

I. TOTAL CAPITAL

A. Capital and reserves

1. Paid-up capital 19 26,191,777.45 26,191,777.45

1.1. Share capital 26,159,819.02 26,159,819.02

1.2. Share premium account 31,958.43 31,958.43

2. Uncalled capital

3. Reserves 1,025,598.57 (1,456,835.67)

3.1. Consolidated reserves 998,130.59 (1,484,998.29)

3.2. Revaluation reserves

3.3. Exchange adjustments 27,467.98 28,162.62

4. Own share (-)

5. Retained earnings (loss carry forward)

TOTAL GROUP CAPITAL 27,217,376.02 24,734,941.78

B. Minority interests within net assets 143,809.27 102,925.07

TOTAL CAPITAL 27,361,185.29 24,837,866.85

II. LIABILITIES

A. Non current liabilities 4,600,848.32 9,441,103.76

6. Noncurrent interest bearing liabilities 15 4,371,359.82 8,994,431.68

7. Noncurrent non-interest bearing liabilities

8. Noncurrent deferred income

9. Noncurrent provisions 14 11,460.00 11,459.90

10. Noncurrent obligations resulting from benefits

12. Noncurrent hedging instruments

12. Deferred tax liabilities 149,658.77 215,168.02

13. Suppliers and other noncurrent creditors 22,156.55 173,221.19

14. Other noncurrent liabilities 46,213.18 46,822.97

B. Current liabilities 15,560,156.21 13,531,479.35

15. Liabilities included in the groups held for sale 54,757.73

16. Current interest bearing liabilities 15 4,977,583.38 5,314,563.53

17. Current non-interest bearing liabilities

18. Current deferred income

19. Current provisions 14 9,300.00 42,300.00

20. Noncurrent obligations resulting from benefits

21. Current hedging instruments

22. Receivable tax liabilities 493,864.01 824,835.32

23. Suppliers and other current creditors 15 9,618,109.84 6,794,953.88

24. Other current liabilities 461,298.98 500,068.89

TOTAL CAPITAL AND LIABILITIES 47,522,189.82 47,810,449.96

27


INCOME STATEMENT BY TYPE note 2005 2004

1. INCOME 53,066,682.53 50,076,106.60

1.1. Sales of goods 11 52,895,537.49 49,975,192.32

1.2. Work in progress

1.3. Income from construction contracts

1.4. Income from fees 171,145.04 100,914.28

1.5. Building rental income

1.6. Other income

2. OTHER OPERATING INCOME 1,146,068.15 280,653.27

2.1. Interest 7,898.72 7,805.20

2.2. Dividends

2.3. Public subsidies

2.4. Other operating income 1,138,167.43 272,848.07

3. ACTIVATION OF CAPITALIZED PRODUCTION 122,968.98 199,583.13

4. OPERATING EXPENSES

4.1. Raw materials and consumption (23,285,345.27) (21,921,300.56)

4.2. Change in finished product inventory and work in progress (874,508.36) (469,403.92)

4.3. Personnel expenses 7 (10,830,524.17) (9,629,577.28)

4.4. Depreciation contributions (3,525,092.93) (3,352,778.65)

4.5. Loss in value (255,268.61) (405,977.44)

of which inventory loss in value 3,008.93 (8,182.98)

of which receivables loss in value (184,661.42) (397,556.18)

of which fixed assets loss in value (73,616.12) (238.28)

4.6. Fair value

4.7. Research and Development Costs

4.8. Restructuring costs

4.9. Other operating expenses 8 (9,800,720.19) (8,681,240.73)

5. OPERATING RESULTS 5,764,258.13 6,096,064.36

6. GAIN (LOSS) ON FINANCIAL INSTRUMENTS DESIGNATED AS CASH

FLOW HEDGES

7. GAIN (LOSS) DUE TO THE DERECOGNITION OF FINANCIAL ASSETS

AVAILABLE FOR SALE (20,730.76) (30,388.15)

8. GAIN (LOSS) ON DISPOSAL OF NONCURRENT ASSETS NOT HELD

FOR SALE 3,132.55 (95,662.32)

9. FINANCIAL CHARGES (691,381.19) (735,244.62)

of which financial fees (593,477.53) (663,724.08)

10. GAIN (LOSS) ON FINANCIAL INSTRUMENTS

(OTHER THAN HEDGING INSTRUMENTS) 28,146.44 25,931.63

11. SHARE IN NET RESULT OF INVESTMENTS AT EQUITY (42,176.22) (11,747.61)

12. OTHER NON-OPERATING INCOME 48,418.32 17,939.76

28


13. OTHER NON-OPERATING CHARGES

14. RESULTS BEFORE TAX 5,089,667.27 5,266,893.06

15. INCOME TAX EXPENSE 13 (1,573,372.81) (1,655,477.58)

16. RESULTS FROM CONTINUING OPERATIONS AFTER TAX 3,516,294.46 3,611,415.48

17. RESULTS FROM DISCONTINUED OPERATIONS AFTER TAX 0 0

18. FISCAL YEAR RESULTS 3,516,294.46 3,611,415.48

18.1. Attributable to minority interests 63,589.48 55,491.80

18.2. Attributable to equity holders of the parent company 3,452,704.89 3,555,923.68

I. EARNINGS PER SHARE

Number of shares 1,615,960 1,615,960

1. Basic earnings per share

1.1. Basic earnings per share from continuing operations 2.18 2.23

1.2. Basic earnings per share from discontinued operations 0 0

Number of diluted shares 1,685,825 1,692,585

1. Diluted earnings per share

1.1. Diluted earnings per share from continuing operations 2.09 2.13

1.2. Diluted earnings per share from discontinued operations 0 0

II. OTHER DISCLOSURES

1. Exchange differences included in the income statement 31,058.56 (36,709.38)

2. Lease and sub-lease payments recorded in the financial statements 898,566.00 834,805.00

29


STATEMENT OF CHANGES IN FINANCIAL POSITION 2005 2004

OPERATING TRANSACTIONS

Fiscal year results 3,558,470.59 3,623,162.97

Depreciation contributions 3,525,092.93 3,352,778.65

Decrease (increase) in write-offs 255,268.61 405,977.44

Increase (decrease) in provisions 55,619,32 10,737.98

Gain (loss) on disposal of assets (-) 55,671.53 126,050.47

Gain (loss) on foreign exchange (-) 9,319.91 132,725.52

Capitalized production (122,968.98) (199,583.13)

Increase (decrease) for deferred items (186,170.23) 291,924.44

Cash flow 7,150,303.68 7,159,925.66

Variation in receivables (782,638.10) (269,568.47)

Variation in inventory 696,749.37 695,414.13

Variation in deferred charges, accrued income 11,481.02 187,719.78

Variation in financial debt (333,520.59) 586,582.57

Variation in trade debt 245,666.70 (465,307.05)

Variation in tax and social security (393,982.00) (1215,461.97)

Variation in other debts 1,417,436.74 117,143.62

Variation in accruals (59,794.78) 45,808.53

Variation in working capital needs (- increase) 801,398.36 (317,668.86)

Operating cash flow 7,951,702.04 6,842,256.80

INVESTMENT TRANSACTIONS

Acquisitions of intangible fixed assets (-) (529,227.53) (619,372.14)

Acquisitions of tangible fixed assets (-) (500,353.78) (417,781.92)

Acquisitions of financial fixed assets (-) (4,636,000.00)

New loans granted (-) (1,046,942.95) (22,908.82)

Transfers of intangible fixed assets (+) 0 23,685.83

Transfers of tangible fixed assets (+) 108,290.44 87,929.56

Transfers of financial fixed assets (+) 28,380.91 99,130.19

Repayment of loans granted (+) 215,461.47 17,696.07

Investment cash flow (1,724,391.44) (5,467,621.23)

FINANCING TRANSACTIONS

Net variations in loans contracted (+ increase) (4,623,670.96) 391,252.69

Dividends paid out (-) (1,019,576.00) (711,022.40)

Financing cash flow (5,643,246.96) (319,769.71)

CASH FLOW VARIATION 584,063.64 1,054,865.86

RECONCILIATION OF CASH ACCOUNTS

Opening balance 5,914,417.14 4,971,171.39

Cash flow variation 584,063.73 1,054,866.07

Exchange adjustments (favorable +) 10,269.42 12,997.98

Transfers to other headings 165,051.22 (308,509.80)

Changes in reporting entity (favorable) 197,544.65 183,891.53

Closing balance 6,871,346.16 5,914,417.17

30


EQUITY VARIATION TABLE Share capital Share premium account

Exchange reserves

Other reserves Fountain Shares Minority interests TOTAL CAPITAL

2003 Closing balance 26,159,819.02 31,958.43 (4,329,900.12) 21,861,877.30 47,433.41 21,909,310.71

Dividends (711,021.77) (711,021.77) (711,021.77)

Fiscal year results 3,555,923.66 3,555,923.66 55,491.69 3,611,415.37

Gains not accounted for in results (foreign currency exchange) 28,162.62 28,162.62 28,162.62

Other increases (decreases)

2004 Closing balance 26,159,819.02 31,958.43 28,162.62 (1,484,998.29) 24,734,941.78 102,925.07 24,837,866.85

Dividends (969,576.00) (969,576.00) (13,503.18) (983,079.18)



Other increases (decreases) (9,026.12) (9,026.12) (9,202.10) (18,228.22)

2005 Closing balance 26,159,819.02 31,958.43 27,467.98 998,130.60 27,217,376.01 143,809.27 27,361,185.28

The main difference between Belgian standards and IFRS standards is related to do differences in first acquisitions. Under Belgian standards, these are depreciated over 10 years using the straight-line method. Under IFRS standards, they are no longer deprecia-ted and are subject to impairment tests.

Share capital Share premium account

Reserves Dividends Exchange adjustments

Minority interests

TOTAL Capital

Balance as of January 1, 2004 (Belgian standards) 26,159,819.02 31,958.43 (5,042,137.00) 0 (97,590.00) 0 21,052,050.45

Consolidation method change 47,433.41 47,433 .41

Provisions 38,747.00 38,747.00

Tangible fixed assets 133,598.00 133,598.00

Restructuring costs (100,185.00) (100,185.00

Exchange adjustments (97,590.00) 97,590.00 0

Inventory 7,533.00 7,533.00

Dividends 711,022.00 711,022.00

Stock option plan (24,697.00) (24,697.00)

Deferred taxes on acquisition costs 43,810.00 43,810.00

Balance as of January 1, 2004 (according to IFRS standards) 26,159,819.02 31,958.43 5,040,922.00 711,022.00 0 47,433.41 21,909,310.71

Balance as of December 31, 2004 (Belgian standards) 26,159,819.02 31,958.43 (4,640,792.00) 0 894.00 0 21,551,879.00

Consolidation method change 102,925.07 102,925.07

Provisions 35,513.00 35,513.00


Restructuring costs (5,804.00) (5,804.00)

Exchange adjustments (97,590.0) 27,268.62 (70,321.38)

Inventory 10,002.00 10,002.00

Dividends 0 0



Goodwill depreciation 3,052,714.33 3,052,714.33

Balance as of December 31, 2004 (according to IFRS standards) 26,159,819.02 31,958.43 (1,484,998.29) 0 28,162.62 102,925.07 24,837,866.85

RECONCILIATION OF NET RESULT 2004 (BELGIAN STANDARDS– IFRS)

RESULTS (BELGIAN STANDARDS) 401,345.07

Goodwill depreciation 3,052,714.33

Provision restatement (3,234.58)

Adjustment after restatement of stock option plans 6,252.00

Cancellation of restructuring costs 95,258.26

Impact due to change from graduated depreciation to straight-line depreciation 1,996.83

Valuation of inventory 2,468.97

Consolidation method change 54,614.62

RESULTS (IFRS STANDARDS) 3,611,415.52

Extraordinary General Meeting on May 29, 2006 will address a decrease in capital by a repayment of 2 Euros for each of the

1,615,960 shares, or a total amount of 3,213,920 Euros.

Allocation of 2005 fiscal year results: At the Annual Meeting held to review the 2005 accounts, a proposal will be made that

dividends not be offered.

RECONCILIATION OF CAPITAL AND RESERVES AS OF JANUARY 1, 2004 and DECEMBER 31, 2004 (BELGIAN STANDARDS–IFRS)

31


EQUITY VARIATION TABLE Share capital Share premium account

Exchange reserves

Other reserves Fountain Shares Minority interests TOTAL CAPITAL

2003 Closing balance 26,159,819.02 31,958.43 (4,329,900.12) 21,861,877.30 47,433.41 21,909,310.71

Dividends (711,021.77) (711,021.77) (711,021.77)



Other increases (decreases)

2004 Closing balance 26,159,819.02 31,958.43 28,162.62 (1,484,998.29) 24,734,941.78 102,925.07 24,837,866.85

Dividends (969,576.00) (969,576.00) (13,503.18) (983,079.18)



Other increases (decreases) (9,026.12) (9,026.12) (9,202.10) (18,228.22)

2005 Closing balance 26,159,819.02 31,958.43 27,467.98 998,130.60 27,217,376.01 143,809.27 27,361,185.28

The main difference between Belgian standards and IFRS standards is related to do differences in first acquisitions. Under Belgian standards, these are depreciated over 10 years using the straight-line method. Under IFRS standards, they are no longer deprecia-ted and are subject to impairment tests.

Share capital Share premium account

Reserves Dividends Exchange adjustments

Minority interests

TOTAL Capital

Balance as of January 1, 2004 (Belgian standards) 26,159,819.02 31,958.43 (5,042,137.00) 0 (97,590.00) 0 21,052,050.45

Consolidation method change 47,433.41 47,433 .41

Provisions 38,747.00 38,747.00


Restructuring costs (100,185.00) (100,185.00

Exchange adjustments (97,590.00) 97,590.00 0

Inventory 7,533.00 7,533.00

Dividends 711,022.00 711,022.00



Balance as of January 1, 2004 (according to IFRS standards) 26,159,819.02 31,958.43 5,040,922.00 711,022.00 0 47,433.41 21,909,310.71

Balance as of December 31, 2004 (Belgian standards) 26,159,819.02 31,958.43 (4,640,792.00) 0 894.00 0 21,551,879.00

Consolidation method change 102,925.07 102,925.07

Provisions 35,513.00 35,513.00


Restructuring costs (5,804.00) (5,804.00)

Exchange adjustments (97,590.0) 27,268.62 (70,321.38)

Inventory 10,002.00 10,002.00

Dividends 0 0



Goodwill depreciation 3,052,714.33 3,052,714.33

Balance as of December 31, 2004 (according to IFRS standards) 26,159,819.02 31,958.43 (1,484,998.29) 0 28,162.62 102,925.07 24,837,866.85

RECONCILIATION OF NET RESULT 2004 (BELGIAN STANDARDS– IFRS)

RESULTS (BELGIAN STANDARDS) 401,345.07

Goodwill depreciation 3,052,714.33

Provision restatement (3,234.58)

Adjustment after restatement of stock option plans 6,252.00

Cancellation of restructuring costs 95,258.26

Impact due to change from graduated depreciation to straight-line depreciation 1,996.83

Valuation of inventory 2,468.97

Consolidation method change 54,614.62

RESULTS (IFRS STANDARDS) 3,611,415.52

Extraordinary General Meeting on May 29, 2006 will address a decrease in capital by a repayment of 2 Euros for each of the

1,615,960 shares, or a total amount of 3,213,920 Euros.

Allocation of 2005 fiscal year results: At the Annual Meeting held to review the 2005 accounts, a proposal will be made that

dividends not be offered.

RECONCILIATION OF CAPITAL AND RESERVES AS OF JANUARY 1, 2004 and DECEMBER 31, 2004 (BELGIAN STANDARDS–IFRS)

32


DESCRIPTIVE DATA AND COMPLIANCE REPORT

Fountain (the “company”) is classified as a société anonyme and its headquarters are in Belgium, at 17 avenue de

l’Artisanat, 1420 Braine-l’Alleud (business registration number 0412.124.393).

The company’s consolidated annual accounts are for the fiscal years ending December 31, 2004 and December 31, 2005.

The consolidated annual accounts group together the company and its subsidiaries (the “Group”), as well the Group’s

interests in joint ventures and associated companies. On March 6, 2006, the Board of Directors approved the publication

of the consolidated accounts.

The consolidated annual accounts are prepared in accordance with International Financial Reporting Standards (IFRS).

The Fountain Group adopted IFRS standards in 2005.

APPENDICES TO THE 2005 CONSOLIDATED ACCOUNTS

SCOPE OF CONSOLIDATION

All companies in which the Group holds a controlling interest are fully consolidated. The Group holds a controlling interest

when it has more than 50% of a company’s capital or has a majority in its governing bodies. Companies in which the

Group holds a significant interest without having a majority interest, are consolidated using the equity method.

Compared with the 2004 fiscal year, the scope of consolidation has been modified by various transactions:

(i) Merger of Fountain International S.A. and AXXOR International S.A.

(ii) Merger of Fountain First N.V. and Davamat Fountain B.V.B.A.

(iii) Transfer of shares from Fountain S.A. to Fountain France S.A.S that Fountain S.A. had held in Cup Express S.A.S.,

Orga Distribution S.A.S, Okole S.A.R.L. and NewCaffé France S.A.S. Transfers were made so as to create tax

integration for the French companies.

(iv) Transfer of Fountain CS s.r.o. in the Czech Republic to a local distributor

(v) The Fountain Group sold 16% of Slodadis SAS securities to its local partner, with the Group keeping 34% of the

capital and de facto control of the company

Companies in which the Group has only a marginally significant shareholding, or whose contribution to the Group is not

material, are not consolidated. In 2005 these were:

(i) Fountain Consumer Appliances Ltd, based in Madras, India, in which the Group has a 17.98% shareholding.

(ii) G.M.S. (Getränke Mit System) GmbH, based in Muggensturm, Germany, in which the Group has taken a 30%

shareholding with an option to sell to the majority shareholders; this option was put forward in the beginning of 2006

by the majority shareholders.

(iii) Fountain Sud SARL, based in southern France, not currently trading and in liquidation. The Group owns 100% of

the shares.

(iv) Fountain Coffee Systems Finland OY, based in Helsinki, Finland, inactive since the end of 2004. The Group owns

100% of the shares.

(v) Covivia, a French legal entity, in liquidation. The Group owns 45% of the shares.

(vi) Fountain USA Inc, created in 2005 and based in Chicago, is 100% owned by the Group.

33


CONSOLIDATION CRITERIA

The results are balanced before appropriations and withdrawals.

The inter-company accounts that exist between Group companies are excluded from the consolidated accounts. Any

dividends between Group companies are eliminated from the consolidated financial statement. Charges and income

between Group companies are also eliminated from the consolidated financial statement.

To accelerate the elimination of transactions between companies, Fountain Group companies post their transactions at a

fixed budgetary currency exchange rate. The distortions that this method can create between supply charges (and hence

the gross margin) and financial charges are corrected on consolidation.

VALIDATION RULES APPLIED TO THE ANNUAL CONSOLIDATED ACCOUNTS

Consolidation Principles

The consolidated accounts include the accounts of Fountain S.A. (Fountain Industries Europe S.A. or FIESA) as well as

those of all the companies that it controls directly or indirectly after the elimination of inter-company transactions.

The consolidated accounts are prepared in accordance with IFRS (International Financial Reporting Standards) rules and

the interpretations that are published by the IFRIC (International Financial Reporting Interpretation Committee).

When items related to assets, liabilities or results in the companies’ financial statements included in the consolidation are

not evaluated according to international standards, they are restated as required for consolidation.

Regarding associated companies, these restatements only take place if the information is available.

Subsidiaries:

A subsidiary is a company in which the Group holds a controlling interest. The criteria used to determine whether the

Group holds a controlling interest in a company is the Group’s ability to direct the financial and operational policies of

this company’s business activities for gain.

Associated companies

Associated companies are companies in which the Group has significant influence over financial and operational decisions,

without controlling them.

This is the case when the Group holds between 20 to 50% of voting rights.

When an option to purchase securities is linked to an associated company’s shareholdings, and this option would

potentially and unconditionally allow the Group to hold the majority of voting rights, such an associated company is

considered a subsidiary and is fully consolidated.

Full consolidation

Subsidiaries are fully consolidated.

Companies at equity

Associated companies are consolidated using the equity method.

For each of these investments individually, the book value of these interests is decreased, in certain situations, to reflect

all loss of value, except for temporary loss.

34


When the Group’s portion of the associated company’s loss exceeds the book value of these investments, it is listed as

zero, as are long-term receivables belonging to the associated companies. Losses greater than this are not entered into

the accounts, with the exception of the amount of the Group’s commitments to these companies.

Companies excluded from consolidation

A company is excluded from consolidation when a controlling interest is meant to be temporary or when a company is

subject to long-lasting and strict restrictions which significantly limit its ability to transfer funds to the parent company.

Also excluded are companies whose contribution to the Group is immaterial.

The list of the Group’s subsidiaries and associated companies is found in the appendix.

Foreign currencies

At consolidation, all assets and liabilities of the consolidated companies (monetary as well as non-monetary) and their

rights and commitments are converted to Euros at the current exchange rate for each foreign currency.

Income and expenses are converted to Euros using the average exchange rate for the financial year, for each foreign

currency.

Resulting conversion differences, when applicable, are noted under capital and liabilities under the heading “exchange

adjustments.” These accumulated differences are accounted for in the results when the relevant company is

transferred.

Accounting rules

Fixed assets

If there are events or changes in circumstance that put the intrinsic value (value in use or realizable value) of a fixed

asset (tangible or intangible) at risk of being lower than its net book value, the Group systematically applies the

impairment test.

In the case where the impairment test shows that the net book value of a fixed asset is higher than its economic value

and there is nothing to show that this variance is temporary, the net book value is reduced to its economic value by

recording a charge for the period.

Intangible fixed assets

Intangible fixed assets will only be listed in the accounts when two conditions are met: there is the likelihood that there

will be a profitable economic gain for the company as a direct result, and that the cost of the intangible asset can be

reliably determined.

Subsequent expenditures for intangible fixed assets will not be noted in the balance sheet unless they increase future

economic gains for the specific asset to which they are linked. All other expenses are listed as charges.

Formation Expense

In accordance with IFRS rules, formation expenses are no longer capitalized as of January 1, 2004.

35


Research costs

Research costs incurred with the goal of acquiring new scientific knowledge or techniques (market studies, for example)

are directly accounted for as expenses for the period.

Development costs

Development costs, for which the research results in an effective application of plans or concepts with the goal of

producing new or noticeably improved products or processes, are only capitalized if all the conditions below are met:

- the products or processes are clearly identifiable as well as their costs isolated and accurately defined

- the technical feasibility of the product or process is demonstrated;

- the product or process will be used internally or sold;

- the product or process brings an economic advantage to the Group;

- the resources (technical or financial, for example) necessary to successfully complete the project are available.

Development costs are subject to straight-line depreciation for the period in which they are likely to represent an

economic gain, going forward from their availability date. They are depreciated over a maximum of five years.

Patents and licenses

When justified, at the introduction or acquisition of a patent, trademark or license, the expenses related to the posting

are applied to the asset using their cost, less cumulative depreciation. They are depreciated using the straight-line

method for the shortest of the following options: either the contractual duration, or the likely period in which the

immaterial asset will represent an economic interest for the Group.

Expenses related to the acquisition of multi-user technology licenses are applied to the asset if the amount justifies it,

and are depreciated over a maximum of three years.

Medium-term assets

Medium-term assets (clientele) acquired from third parties are depreciated according to the straight-line method over

ten years.

Trademarks

Trademarks for which ownership is acquired from third parties are recorded under intangible fixed assets. Their life

expectancy is determined by the customer retention period from which they would benefit, in the absence of any

supporting marketing efforts, and is limited to ten (10) years.

Their acquisition value is depreciated using the straight-line method going forward, over a ten (10) year period.

Trademark registration costs are listed as expenses for the fiscal year.

Goodwill

Goodwill represents the positive difference between the acquisition price of an investment and the fair value of the

subsidiary or associated business’s assets, liabilities and identifiable unrealized liabilities, at the date of its acquisition.

The net book value of goodwill is its value at the date of acquisition, less losses of value that are booked following the

annual impairment tests as well as less cumulative depreciation booked as of December 31, 2003.

36


Tangible fixed assets

Adhering to IFRS standards, tangible fixed assets are only recorded as assets if it is likely that the future economic gains

associated with this asset will belong to the company and that the cost of this asset can be reliably assessed.

Tangible fixed assets are recorded at their historic cost less cumulative depreciation and cumulative loss in value. The

historical cost includes the initial purchase price or the manufacturing cost price if capitalized production is involved,

increased by their direct acquisition costs.

These assets are depreciated using the straight-line method based on their estimated life expectancy, until equaling their

residual value.

Land is not depreciated.

The machines marketed by the Group on consignment, on deposit and/or by subscription are removed from inventory

and moved to fixed assets. They are valued at their last inventory value and are depreciated using the straight-line

method for a maximum of three years.

Subsequent expenditures (repairs and maintenance) of goods are generally considered as an expense for the period.

These costs will not be capitalized except in cases where they clearly increase the future economic value of the use of

the good, above that of its initial value.

In this case, these expenses will be depreciated over the duration of the remaining life of the relevant asset.

Historic value of land, as well as that of buildings before depreciation, but to the exclusion of all other tangible fixed

assets, will be, in certain cases, revaluated every three years by recognized, independent experts if the Group is made

aware of factors that could definitively and permanently alter the fair value.

A decrease in value (negative revaluation) will first be charged to the revaluation reserve and, if that is not sufficient,

the revaluation will be immediately taken into account for the period, by balance or fully.

Each year the difference between the calculated depreciation of the revaluation value and that calculated on the historic

value of the good will be transferred from the revaluation reserve to the reported results.

Tangible fixed assets are depreciated as follows:

• buildings: from 5% to 10% per year

• plants, machinery and equipment: from 10% to 33% per year

• vehicles: from 25% to 33% per year

• office supplies and furniture: from 10% to 25%

• other tangible fixed assets: from 10% to 20% per year

Lease financing

When the Group is responsible for almost all the risks and advantages inherent in the ownership of leasing assets, leasing

is recorded in the balance sheet according to the actual reimbursement value at the time the lease financing contract is

entered into, and is listed as a tangible fixed asset. If the opposite is true, leasing expenses are considered operational

and are taken into account for the period.

37


Repayments are considered as financial charges in part and in part as repayment of leasing debt; there is, therefore, a

constant interest expense related to the capital to be repaid for the full duration of the contract.

Financial charges are directly recorded as an expense for the period’s results.

Depreciation and expected life rules vary according to the type of asset concerned. However, when the leasing contract

length is shorter than the expected life of the good being leased, and when, considering the circumstances, it is unlikely

that the good will remain a fixed asset of the company until the end of the contract, it will be depreciated over the life

of the contract.

Payments under the operating lease financing scheme are recorded as expenses using the straight-line method, over

the life of the contract.

Inventor

The value of inventory is determined using the weighted average price method. Speedy turnover leads, in practice,

to the use of the last purchase price, which results in a virtually equivalent valuation.

When items in stock have been transferred between different companies within the Group, their inventory value is

brought down to their cost price, as if the transfers had taken place at cost price. The elimination of margin variation on

inventory is corrected in tax charges for the fiscal year, when justified.

The value of inventory held by the distribution companies is increased by a minimum charge for distribution costs.

This minimum charge is validated annually using actual data from the last completed fiscal year.

Raw materials

Raw materials include the entirety of materials and components used in the manufacture of finished goods.

Finished goods

The goods manufactured by the Group can be machines (beverage dispensers) or consumable products.

The cost of finished goods includes the cost of raw materials and direct labor as well as a standard share of direct

production costs. This amount is validated annually using actual data from the last completed fiscal year.

38


Goods for resale

Goods for resale are the machines and consumable products purchased by the Group for the purpose of reselling them,

as is, on the market.

Write-offs

So that the value of the items in inventory represents its actual economic value as accurately as possible, these items

are systematically written-off using automatic values according to the relevant product’s type and characteristics:

• for “dispenser” machines, progressive write-offs are applied based on the inventory’s shelf-life.

• 15% after one year,

• 50% after two years,

• 100% after three years.

• for machines used for “testing” that are returned to inventory, progressive write-offs are applied based on the service

life of the machine.

• 15% if the machine has less than one year of service life,

• 50% if the machine has more than one year of service life,

• 100% if the machine has more than two years year of service life.

• for cartridges in consumable products: when their expiration date no longer allows them to be entered into the normal

distribution cycle, they are destroyed and recorded as expenses for the period

• for parts: when their corresponding “dispensing” machines have not been produced for a significant amount of time

and the active inventory of these distributors has been seriously reduced because these machines’ have been replaced

by newer machines, a depreciation of 100% will be applied.

• for promotional material: this item is brought down to a zero value if it is not used within two years of its release.

Work in progress

Work in progress concerns only machines produced by the Group.

Work in progress is valued on the basis of production series and includes:

• actual raw material costs according to a bill of materials adapted to the series’ volume,

• the standard cost for direct labor

• and a standard minimum for indirect production costs.

39


Trade debt receivables and other

Trade debt receivables are recorded at their face value and decreased by any write-downs. At the end of the fiscal year,

bad debt is estimated using all overdue payments and all objective information showing that the Group will not be able

to fully recover all recorded debt, or recover it based on the original terms.

Provision rules for trade debt receivables are:

• if payments are more than 6 months late: provision of 50%

• if payments are more than 12 months late: provision of 100%

• in the event of bankruptcy, provision of 100% of the non recoverable amount

Cash at bank and in hand and investments

Cash and short-term deposits held to term are accounted for at their face value.

“Cash at bank” is defined as cash when sight deposits and investments are rapidly convertible to cash and exposed to

an insignificant risk of depreciation.

In the cash flow hedge financial statements, cash at bank is shown net of short-term debt (overdrafts) at the banking

institutions. These same overdrafts are, however, shown as bank debt on the balance sheet.

Own shares

When own shares are repurchased, the repurchased shares are deducted from equity.

Provisions

Provisions are established when the Group must disengage from commitments resulting from previous events, when it

is likely that a use of funds will be necessary to cancel the commitments, and when it is likely that their scope can be

accurately estimated.

They are reviewed at closing and adjusted to reflect the best estimate of the obligation.

When the Group anticipates that a provision will be repaid (through an insurance policy, for example), the ensuing debt

will be recognized when it is virtually certain.

A warranty provision is established for all products under warranty as of the balance sheet’s date.

No “food-related risks” provision has been recorded.

40


Benefits

The Group offers a certain number of fixed-contribution retirement plans to its employees. The Group’s contributions to

these retirement plans are noted in the financial statement for the relevant fiscal year.

The Group does not currently foresee any variable-contribution retirement plan and/or for which the face value would

not be fully covered.

The premiums paid to certain employees and managers are based on financial or quantitative objectives and are taken

as an expense, based on an estimate as of the balance sheet’s date.

Stock options

The fair value of the options on shares granted is entered into the financial statement and credited under capital for the

rights acquisition period. It is based on the number of options granted. This estimate is reviewed semi-annually. The fair

value of the options on shares granted is assessed at the granting date using the Black & Scholes model.

Deferred Taxes

Deferred taxes are calculated according to the liability method with regards to all temporary differences between the

assets and liabilities financial base and their book value, as noted in the financial reports. The deferred tax calculation is

made with a standard tax rate of 34%.

Deferred tax assets are not entered into the accounts unless they are likely to produce sufficient future taxable earnings

that offer a tax benefit. Deferred tax assets are reduced to the extent that a related tax benefit is unlikely.

When companies are newly acquired, provisions for deferred taxes are established with regards to the temporary

difference between the asset’s net acquired real value and its tax base.

Financial debt and other

Interest-bearing loans are initially valued at their face value, less related transaction costs. Then they are valued at their

depreciated cost based on real interest. Any difference between the cost and the repayment value that are posted to the

financial statements for the life of the loan is based on the real interest rate.

Trade or other debt is posted at its face value.

41


Subsidies received

Subsidies received are not recorded unless there is a reasonable assurance that the company will adhere to the conditions

attached to the subsidies, and that they will be received.

Subsidies are recorded as income for the fiscal years in which the related costs that they are meant to reimburse

appear.

Income tax

Income tax for the fiscal year is made up of current tax, calculated at the actual tax rate for the consolidated companies,

and deferred tax, calculated at the average consolidated rate for the period.

Revenue

Sales are considered realized when it is likely that the economic gains linked to the transaction will be returned to

the Group and when it is possible to accurately determine the revenue. As far as products and goods for resale are

concerned, sales are considered realized when the sale gains and risks are entirely the buyer’s responsibility.

Warrants and Stock Option Plans

The warrant plans in force at the end of 2005 initially entitled their holders to subscribe to 148,801 shares.

44,400 were allocated under plan B, 45,745 under plan D and 44,400 under plan E. Plan C was cancelled during the

2000 fiscal year.

On December 31, 2005, 14,800 Plan B warrants and 39,765 Plan D warrants had been definitively acquired by the

beneficiaries. The balance of plan B and plan D warrants can no longer be acquired after that date. Finally, 40,700 plan

E warrants were definitively acquired at the end of 2005. Of the remaining plan E warrants, 3,700 should be acquired

during the 2006 fiscal year.

LIST OF DIRECTORS AND STATUTORY AUDITORS

(in alphabetical order) Term start date Term end date

DIRECTORS

Mr. Jean DUCROUX March 24, 1999 May 26, 2009

Mr. Alain ENGLEBERT Independent March 24, 1999 May 26, 2009

Mr. Regnier HAEGELSTEEN Independent March 24, 1999 May 26, 2009

Mr. Bruno LAMBERT March 24, 1999 May 26, 2009

Mr. Paul LIPPENS Independent March 24, 1999 May 26, 2009

Mr. Philippe RENIE March 24, 1999 May 26, 2009

Mr. Philippe SEVIN March 24, 1999 May 26, 2009

Mr. Pierre VERMAUT, President Independent (1) March 24, 1999 May 26, 2009

AUDITORS

Linet & Partners SCPRL (for statutory accounts)represented by Mr. Michel Linet

April 14, 1997 May 29, 2006

B.S.T. Réviseurs d’Entreprises SCPRL (for consolidated accounts) represented by Ms. Pascale Tytgat

April 1, 1998 May 28, 2007

(1) As defined in the Lippens Code, as of September, 2005, Mr Pierre Vermaut is considered independent (three years will have passed since the

end of his executive functions).

42


I. LIST OF GROUP’S COMPANIES

1. Companies consolidated globally

Company Address Country

Percentage participation

Change in % of capital compared to

2004Axxor International SAThe company merged with Fountain International SA in 2005

B-1420 Braine-l’AlleudAvenue de l’Artisanat 13,

Belgium 0 % - 100.00%

Cup Express SASAvenue du Plateau 18F-93340 Le Raincy

France 100.00% -

Fountain First NV The company merged with Davamat- Fountain BVBA in 2005

Eeklostraat 81, B-9971 Lembeke

Belgium 100.00% -

FODIS SASRue Joseph Le Brix, ZA de Mescoden, bte 72F-29260 Ploudaniel

France 100.00% -

Fountain SA Avenue de l’Artisanat 17,B-1420 Braine-l’Alleud

Belgique 100.00% -

Fountain CS, s.r.o.Company sold in 2005

Hudcova 78, CR-61200 Brno

Czech Republic 0 % - 100.00%

Fountain Denmark A/SHammerholmen 18E, DK-2650 Hvidovre

Denmark 100.00% -

Fountain Distribution Center GEIE

Boulevard de la Libération 6, F-93200 Saint-Denis (Paris)

France 100.00% -

Fountain Industries Brussels S.A.

Avenue de l’Artisanat 13,B-1420 Braine-l’Alleud

Belgium 100.00% -

Fountain France SAS Boulevard de la Libération 6, F-93200 Saint-Denis (Paris)

France 100.00% -

Fountain Industries U.K. LtdReydon Business Park, IP18 6DH Reydon Southwold, Suffolk

United Kingdom 100.00%

Fountain International SA, the company merged with AXXOR International SA in 2005

Avenue de l’Artisanat 17,B-1420 Braine-l’Alleud

Belgium 100.00% -

Fountain Manufacturing LtdReydon Business Park, IP18 6DH Reydon Southwold, Suffolk

United Kingdom 100.00% -

Fountain Netherlands Holding BV

Baronielaan 139, NL-4818 PD Breda

Netherlands 100.00% -

FountainBrand International NVKaya Richard, J. Beaujon z/n,Curaçao

Netherlands Antilles

100.00% -

Orga Distribution SAS Avenue du Plateau 18F-93340 Le Raincy

France 100.00% -

NewCaffè (France) SASBoulevard de la Libération 6, F-93200 Saint-Denis (Paris)

France 100.00% -

Slodadis SAS (1)Chemin de Saint Marc 51-53, F-06530 Pleymeinade

France 34.00% -16.00%

NewCaffè Importateur SASBoulevard de la Libération 6, F-93200 Saint-Denis (Paris)

France 100.00% -

Sy-Ra International Holding NVKaya Richard, J. Beaujon z/n,Curaçao

Netherlands Antilles

100.00% -

(1) The Fountain Group retains de facto control of the company through a shareholder agreement.

43


2. Companies at equity




2004Davamat-Fountain BVBAThe company merged with Fountain-First NV in 2005

Eeklostraat 81, B-9971Lembeke

Belgium 0% -100.00%

Fountain Soleil SASRoland Garros 165, F-34130 Mauguio

France 50.00% -

Okole SARL Rue Charles de Gaulle 676,F-59840 Premesques

France 50.00% -

For these companies, the balance sheet total for 2005, sales for 2005, and net results for 2005 are as follows:

• Fountain Soleil SAS: 484,000 Euros, 1,029,000 Euros and negative 22,000 Euros

• Okole SARL: 257,000 Euros, 820,000 Euros and negative 41,000 Euros

3. Companies not consolidated (minimally important shareholdings)




2004Fountain Coffee Systems Fin-land OY (société mise “en sommeil”)

Pakilantie 61, SF-00660 Helsinki

Finland 100.00% -

Fountain Consumer Appliances Ltd

”Belmont” Upasi Road, Coonor 643 101, India

India 17.98% -

Fountain Sud (France) SARL (in liquidation)

ZA les Ferrailles, Route de Caumont, F-84800 Isle sur la Sorgue

France 100.00% -

Covivia SARL (in liquidation)Avenue Gambetta 126, F-75020 Paris

France 45.00% -

Fountain USA, Inc5458 North Magnolia, chicago II, USA-60640

USA 100.00% 100.00%

Getränke Mit System GmbHVogesenstrasse 41, D-76461 Muggensturm

Germany 30.00% -

Of these associated companies (or joint ventures), Fountain Consumer Appliances Ltd in India, of which the Group holds

17.98%, is the only one with significant business activity. This company’s balance sheet shows a total of 2,846,000 Euros

in 2005 (3,121,000 Euros in 2004), the net results being negative 591,000 Euros in 2005 (8,000 Euros in 2004).

NOTE 1: SECTOR INFORMATION

The Fountain Group is principally active in the OCS (Office Coffee System) market. The Group considers, therefore, that

there is only one primary segment.

The secondary segment is based on geographic location. The Fountain Group receives more than 90% of its sales from

the European market; therefore, there is only a single geographic market. When activity outside Europe surpasses 10%,

an additional secondary segment will be created.

44


NOTE 2: STATE OF INTANGIBLE FIXED ASSETS

Medium-term assets

Goodwill Development costs

Trademarks Patents and other rights

Software TOTAL

I . INTANGIBLE FIXED ASSET TRANSACTIONS

1. Intangible fixed assets, opening balance 4,936,848.08 15,313,873.51 377,369.28 3,539,988.15 143,159.65 170,391.32 24,481,629.99

1.1. Gross value 7,545,271.92 15,313,873.51 833,483.75 11,483,516.50 187,042.36 934,707.48 36,297,895.52

1.2. Accumulated depreciation (2,608,423.84) (456,114.47) (7,943,528.35) (43,882.71) (764,316.16) (11,816,265.53)

1.3. Accumulated loss in value

2. Internally generated investments

3. Investments 57,740.00 311,087.81 8,075.03 197,622.92 574,525.76

4. Acquisitions through company mergers

5. Transfers

6. Transfers to noncurrent assets and assets to sell (427,197.00) (427,197.00)

7. Transfers through company spin-offs

8. Adjustments resulting from subsequent recognition of deferred tax assets

9. Depreciation (729,876.00) (328,609.07) (1,148,351.64) (15,736.51) (121,012.42) (2,343,585.64)

10. Increase (decrease) resulting from recorded revaluation of equity

12. Loss in value recorded as equity recovery

13. Loss in value recorded in the financial statement (184,892.36) (184,892.36)

14. Increase (decrease) resulting from exchange rate fluctuations (1,818.79) (1,818.79)

15. Other increases (decreases) 16,664.00 105,429.25 (10,124.72) (546.67) (111,421.86)

16. Intangible fixed assets, closing balance 3,794,620.41 15,186,720.91 465,277.27 2,391,636.51 125,373.45 246,455.15 22,210,083.94

16.1. Gross value 6,307,324.92 15,371,613.51 1,064,106.33 11,483,516.50 192,750.73 1,134,697.06 35,554,009.05


16.3. Accumulated loss in value (184,892.60) (184,892.60)

II. OTHER INFORMATION

1. Net intangible fixed assets generated internally

2. Loan costs included in asset costs during the fiscal year

3. Mortgage loans and other commitments: Amount of intangible fixed assets used as debt collateral (including mortgages)

Every year, the Group conducts impairment tests. If these tests show that the net book value of a fixed asset is higher than

its economic value and there is nothing to show that this variance is temporary, the net book value is reduced to its economic

value by recording a charge for the period. The impairment tests are based on discounted capital costs of infinite free cash flows

generated by fixed assets. Being industrially integrated, the Fountain Group, tracks each stage of free cash flows generated.

45


NOTE 2: STATE OF INTANGIBLE FIXED ASSETS

Medium-term assets

Goodwill Development costs

Trademarks Patents and other rights

Software TOTAL

I . INTANGIBLE FIXED ASSET TRANSACTIONS

1. Intangible fixed assets, opening balance 4,936,848.08 15,313,873.51 377,369.28 3,539,988.15 143,159.65 170,391.32 24,481,629.99

1.1. Gross value 7,545,271.92 15,313,873.51 833,483.75 11,483,516.50 187,042.36 934,707.48 36,297,895.52



2. Internally generated investments

3. Investments 57,740.00 311,087.81 8,075.03 197,622.92 574,525.76


5. Transfers

6. Transfers to noncurrent assets and assets to sell (427,197.00) (427,197.00)


8. Adjustments resulting from subsequent recognition of deferred tax assets

9. Depreciation (729,876.00) (328,609.07) (1,148,351.64) (15,736.51) (121,012.42) (2,343,585.64)



13. Loss in value recorded in the financial statement (184,892.36) (184,892.36)

14. Increase (decrease) resulting from exchange rate fluctuations (1,818.79) (1,818.79)

15. Other increases (decreases) 16,664.00 105,429.25 (10,124.72) (546.67) (111,421.86)

16. Intangible fixed assets, closing balance 3,794,620.41 15,186,720.91 465,277.27 2,391,636.51 125,373.45 246,455.15 22,210,083.94

16.1. Gross value 6,307,324.92 15,371,613.51 1,064,106.33 11,483,516.50 192,750.73 1,134,697.06 35,554,009.05




1. Net intangible fixed assets generated internally

2. Loan costs included in asset costs during the fiscal year

3. Mortgage loans and other commitments: Amount of intangible fixed assets used as debt collateral (including mortgages)

Every year, the Group conducts impairment tests. If these tests show that the net book value of a fixed asset is higher than

its economic value and there is nothing to show that this variance is temporary, the net book value is reduced to its economic

value by recording a charge for the period. The impairment tests are based on discounted capital costs of infinite free cash flows

generated by fixed assets. Being industrially integrated, the Fountain Group, tracks each stage of free cash flows generated.

46


NOTE 3: STATE OF TANGIBLE FIXED ASSETS

Work in progress inventory

Land and buildings Plants, machinery and equipment

Motorized vehicles Fixtures and incidental charges

Other tangible fixed assets

TOTAL

I. TANGIBLE FIXED ASSET TRANSACTIONS

1. Tangible fixed assets, opening balance 166,565.99 642,342.94 688,193.72 107,890.18 614,892.70 385,033.11 2,604,918.64

1.1. Gross value 166,565.99 1,206,496.66 5,106,228.46 210,817.10 4,048,530.36 1,179,443.39 11,918,081.96

1.2. Accumulated depreciation (564,153.72) (4,418,034.74) (102,926.92) (3,433,637.66) (794,410.28) (9,313,163.32)


2. Investments 15,273.00 94,951.59 32,902.59 353,197.20 126,998.38 623,322.76

3. Acquisitions through company mergers 7,469.18 7,469.18

4. Transfers (7,664.51) (30,379.58) (32,903.20) (18,595.49) (89,542.78)

5. Transfers to noncurrent assets and assets for sale

6. Transfers to other headings (166,565.99) 125,247.81 (1,746.02) 162,264.31 (129,927.43) (10,727.31)

7. Transfers through company spin-offs (9,438.72) (91,616.34) (101,055.06)

8. Depreciation (103,822.44) (438,843.26) (45,070.61) (299,616.99) (53,698.28) (941,051.58)



11. Increase (decrease) resulting from recorded revaluation in the financial statement

12. Loss in value recovery recorded in the financial statement

13. Increase (decrease) resulting from exchange rate fluctuations 7,477.21 (3.04) 901.01 (4,386.63) 3,988.57

14. Other increases (decreases) 4,487.07 (5,307.69) (820.62)

15. Tangible fixed assets, closing balance 15,273.00 538,520.51 469,362.56 68,080.59 791,457.78 213,807.32 2,096,501.76

16.1. Gross value 15,273.00 1,206,496.66 5,318,646.33 194,742.12 4,450,224.54 823,013.50 12,008,396.15




1. Leasing 521,984.71 67,280.26 589,264.97

1.1. Net book value

1.2. Tangible fixed assets acquired through leasing

NOTE 4: CURRENT AND NONCURRENT FINANCIAL ASSETS

Other financial assets Shares Securities, other than shares Loans TOTAL

I. FINANCIAL ASSET TRANSFERS

1. Financial assets, opening balance 139,610.93 75,377.12 110,319.26 325,307.31

1.1 Gross value 169,683.38 75,377.12 110,319.26 355,379.76


2. Investments


4. Transfers (1,239.47) (1,239.47)

5. Transfers to other headings


7. Goodwill in associated companies

8. Increase (decrease) from fair value variation

9. Share in net result

10. Loss in value recovery (238.28) (238.28)

11. Increase (decrease) resulting from exchange rate fluctuations

12. Other increases (decreases) 826.54 400,078.80 (89,065.49) 311,839.85

13. Financial assets, closing balance 138,959.71 475,455.92 21,253.77 635,669.41

13.1.1. Gross value 162,562.68 475,455.92 110,319.26 748,337.86

13.1.2. Accumulated loss in value (23,602.97) (23,602.97)

13.2.1. Net noncurrent financial assets 138,959.71 21,253.77 160,213.49

13.2.2. Net current financial assets 475,455.92 475,455.92

47


NOTE 3: STATE OF TANGIBLE FIXED ASSETS

Work in progress inventory

Land and buildings Plants, machinery and equipment

Motorized vehicles Fixtures and incidental charges

Other tangible fixed assets

TOTAL

I. TANGIBLE FIXED ASSET TRANSACTIONS

1. Tangible fixed assets, opening balance 166,565.99 642,342.94 688,193.72 107,890.18 614,892.70 385,033.11 2,604,918.64

1.1. Gross value 166,565.99 1,206,496.66 5,106,228.46 210,817.10 4,048,530.36 1,179,443.39 11,918,081.96



2. Investments 15,273.00 94,951.59 32,902.59 353,197.20 126,998.38 623,322.76

3. Acquisitions through company mergers 7,469.18 7,469.18

4. Transfers (7,664.51) (30,379.58) (32,903.20) (18,595.49) (89,542.78)

5. Transfers to noncurrent assets and assets for sale

6. Transfers to other headings (166,565.99) 125,247.81 (1,746.02) 162,264.31 (129,927.43) (10,727.31)

7. Transfers through company spin-offs (9,438.72) (91,616.34) (101,055.06)

8. Depreciation (103,822.44) (438,843.26) (45,070.61) (299,616.99) (53,698.28) (941,051.58)



11. Increase (decrease) resulting from recorded revaluation in the financial statement

12. Loss in value recovery recorded in the financial statement

13. Increase (decrease) resulting from exchange rate fluctuations 7,477.21 (3.04) 901.01 (4,386.63) 3,988.57

14. Other increases (decreases) 4,487.07 (5,307.69) (820.62)

15. Tangible fixed assets, closing balance 15,273.00 538,520.51 469,362.56 68,080.59 791,457.78 213,807.32 2,096,501.76

16.1. Gross value 15,273.00 1,206,496.66 5,318,646.33 194,742.12 4,450,224.54 823,013.50 12,008,396.15




1. Leasing 521,984.71 67,280.26 589,264.97

1.1. Net book value

1.2. Tangible fixed assets acquired through leasing


Other financial assets Shares Securities, other than shares Loans TOTAL

I. FINANCIAL ASSET TRANSFERS

1. Financial assets, opening balance 139,610.93 75,377.12 110,319.26 325,307.31

1.1 Gross value 169,683.38 75,377.12 110,319.26 355,379.76


2. Investments


4. Transfers (1,239.47) (1,239.47)

5. Transfers to other headings


7. Goodwill in associated companies

8. Increase (decrease) from fair value variation

9. Share in net result

10. Loss in value recovery (238.28) (238.28)

11. Increase (decrease) resulting from exchange rate fluctuations

12. Other increases (decreases) 826.54 400,078.80 (89,065.49) 311,839.85

13. Financial assets, closing balance 138,959.71 475,455.92 21,253.77 635,669.41

13.1.1. Gross value 162,562.68 475,455.92 110,319.26 748,337.86

13.1.2. Accumulated loss in value (23,602.97) (23,602.97)

13.2.1. Net noncurrent financial assets 138,959.71 21,253.77 160,213.49

13.2.2. Net current financial assets 475,455.92 475,455.92

Lease contract financing under the heading “land and buildings” is related to the Group’s headquarters building (383,000 Euros).

48


NOTE 5: CASH AND CASH EQUIVALENTS

2005 2004

Cash on hand 7,183.87 0

Bank balance 6,085,653.47 5,450,562.46

Short-term accounts 2,763.75 259,100.14

Other cash and cash equivalents 0 0

TOTAL 6,095,601.09 5,709,662.60


Historic cost valuation Fair value valuation

I. OTHER NONCURRENT FINANCIAL ASSETS 31/12/2005 31/12/2004 31/12/2005 31/12/2004

1. Fair value financial assets through financial statement bias

138,959.71 138,610.93

1.1. Shares 138,959.71 138,610.93


1.3. Other Fixed financial assets

2. Loans and receivables 21,253.77 110,319.26

3. Financial assets available for sale 186,647.17 219,002.39

3.1. Shares


3.3. Other Fixed financial assets 186,647.17 219,002.39

II. OTHER CURRENT FINANCIAL ASSETS

1. Financial assets available for sale 775,744.63 204,754.54 475,455.92 75,377.12

1.1. Shares

1.2. Securities, other than shares 475,455.92 75,377.12 475,455.92 75,377.12

1.3. Other Fixed financial assets 300,288.71 129,377.42

NOTE 7: PERSONNEL EXPENSES AND POST-EMPLOYMENT BENEFITS

Personnel expenses 2005 2004

TOTAL (10,830,524.17) (9,629,577.28)

The Group offers a certain number of fixed-contribution retirement plans to its employees. The Group’s contributions to

these retirement plans are noted in the financial statement for the relevant fiscal year.

NOTE 8: OTHER OPERATING EXPENSES

2005 2004

Rent 898,566.00 834,805.00

Transport, vehicle, and related costs 2,282,468.00 2,215,253.00

Dues 1,587,707.00 1,597,603.00

Advertising and marketing fees 1,108,039.00 807,335.00

Taxes (other than taxes on results) 403,058.00 337,968.00

Other 3,520,882.19 2,888,276.73

TOTAL 9,800,720.19 8,681,240.73

49


NOTE 9: INVENTORY

2005 2004

I. NET INVENTORY AMOUNTS 3,988,653.81 4,650,043.94

1. Gross book value 4,673,555.92 5,370,883.84

1.1. Goods for resale 847,255.37 1,677,879.30

1.2. Production supplies 0 0

1.3. Raw materials 1,042,177.62 1,201,617.59

1.4. Work in progress 137,227.25 127,782.39

1.5. Finished goods 2,646,895.68 2,363,604.56

1.6. Other inventory 0 0

2. Depreciation and other write-offs (684,902.11) (720,839.90)

2.1. Goods for resale (69,280.28) (153,221.65)

2.2. Production supplies 0 0

2.3. Raw materials (212,471.19) (104,555.68)

2.4. Work in progress 0 0

2.5. Finished goods (403,150.64) (463,062.57)

2.6. Other inventory 0 0

NOTE 10: CURRENT NET ACCOUNTS RECEIVABLE

2005 2004

I. CURRENT NET ACCOUNTS RECEIVABLE 7,994,963.81 6,385,911.50

1. Current gross receivables 9,948,116.56 7,898,252.28

2. Accumulated value corrections (1,953,152.75) (1,512,340.78)

NOTE 11: AGGREGATE NET SALES FOR BELGIAN GROUP

(in EUR) 2005 2004

Addition of sales concluded in Belgium 9,489,963.84 8,949,271.51

NOTE 12: PERSONNEL HEAD COUNT

Average head count

(full-time equivalents) 2005 2004

Average staff head count of fully consolidated companies

230 226

Executives 14 14

Employees 171 164

Workmen 45 48

Average staff head count in Belgium 72 69

NOTE 13: INCOME TAX

Tax expense details in result accounts

(in EUR) 2005 2004

Current tax related to the outstanding fiscal year (2,340,328.55) (2,292,173.02)

Current tax related to previous fiscal years (2,493.49) 0

Deferred tax related to the outstanding fiscal year (280,362.21) (54,004.01)

Deferred tax related to previous fiscal years 583,279.00 344,771.00

Transfers to deferred tax 466,532.44 345,928.45

TOTAL (1,573,372.81) (1,655,477.58)

50


Deferred tax assets – not accounted for

2005 2004

Fountain Manufacturing UK 0 165,440.65

Fountain Denmark 66,380.34 77,410.00

TOTAL 66,380.34 242,850.65

Deferred tax by category

2005 2004

BALANCE SHEET Assets Liabilities Assets Liabilities

Depreciation other than trademarks 13,689.00 71,318.00 15,819.00 71,275.00

Trademarks 826,203.00 728,739.00

Provisions 11,939.00 16,684.00

Inventory 362,169.00 2,586.00 249,900.00 2,245.00

Unprofitable companies 30,083.00

Statutory 63,815.00 124,964.00

Other 19,538.00

TOTAL 1,232,144.00 149,658.00 1,013,996.00 215,168.00

INCOME STATEMENT Expenses Products Expenses Products

Inventory (250,360.00) 362,235.00 (7,764.00) 93,715.00

Provisions (11,939.00) (316.00) 17,636.00

Unprofitable companies 30,083.00

Statutory 61,149.00 28,656.00

Depreciation and other (18,062.00) 13,381.00 (46,239.00) 205,922.00

TOTAL (280,361.00) 466,532.00 (54,003.00) 345,929.00

Deferred tax assets are not recorded for unprofitable companies in any given year unless the budget for the next year

predicts a return to a net profit result. If this is not the case, no deferred tax asset is posted.

The Group has recoverable tax losses in Fountain Manufacturing UK and Fountain Denmark.

Reconciliation of 2005 tax expenses

Profit before tax for 2005: 5,089,667.27

Parent company tax rate: 33.99%

Possible taxes (1,729,977.91)

UK tax credit 329,109.08

Tax refunds in the Netherlands 326,483.00

Non depreciable medium-term assets (177,469.78)

Unprofitable company without allocation of deferred tax assets (66,360.81)

Unlisted expenditures and other differences (255,156.39)

Taxes accounted for in 2005 results (1,573,372.81)

51


NOTE 14: PROVISIONS

Reserve provisions

Restruc-turing

provisions

Litigation provisions

Other provisions

TOTAL

I. PROVISIONS

1. Provisions, opening balance 33,000.00 9,300.00 11,460.00 53,760.00

2. Supplementary provisions

3. Increase (decrease) in existing provisions (33,000.00) (33,000.00)

4. Other increases (decreases)

5. Provisions, closing balance 9,300.00 11,460.00 20,760.00

5.1. Noncurrent provisions, closing balance 11,460.00 11,460.00

5.2. Current provisions, closing balance 9,300.00 9,300.00

There is litigation by Fountain Distribution Center against the French tax authorities, for a maximum amount of

0.2 million Euros. Based on the risk assessment completed by our advisors, this legal action did not result in any

provision.

NOTE 15: LIABILITIES AND CREDITORS

December 2005 Situation December 2004 Situation1 year or less 1 to 5 years + 5

yearsTOTAL 1 year or less 1 to 5 years + 5

yearsTOTAL

I. LIABILITIES WITH INTEREST ACCORDING TO TERM1. Bank loans 4,564,709.15 3,862,980.61 8,427,689.76 5,306,243.60 8,130,492.86 13,436,736.463. Leasing 247,823.01 485,763.67 733,586.67 791,649.55 791,649.554. Other loans 165,051.22 22,615.54 187,666.76 72,289.27 72,289.27TOTAL 4,977,583.38 4,371,359.82 9,348,943.20 5,306,243.60 8,994,431.68 14,300,675.28

II. SUPPLIERS AND OTHER CREDITORS ACCCORDING TO TERM1. Suppliers 5,682,413.32 5,682,413.32 4,807,518.71 4,807,518.712. Advances

received1,912,593.74 1,912,593.74

3. Other creditors 228,612.52 68,369.73 296,982.25 473,505.43 220,044.16 693,549.59TOTAL 7,823,619.58 68,369.73 7,891,989.31 5,281,024.14 220,044.16 5,501,068.30

NOTE 16: RIGHTS AND COMITTMENTS OFF-BALANCE SHEET

(in EUR) 2005 2004

Personnel reserves established or irrevocably promised as debt collateral 9,481,331.00 8,547,917.00

Actual reserves established or irrevocably promised by the Group on its assets for the benefit of consolidated commercial companiesfor the benefit of credit institutions

271,758.00 76,520.0074,041.002,479.00

Property owned by third parties in their name but at the benefit and risk of the Group if off balance sheet

435,205.00 420,294.00

Commitments for sale of fixed assetsCommitments of fixed asset acquisitions

123,870.00 154,500.001.00

Rights resulting from transactions relating to acquisition of companies 4,529,083.00 6,863,935.00

Commitments resulting from Transactions relating to stock option plans

N/R69,865

warrants

N/R76,625

warrants

N/R = non recoverable

52


NOTE 17: RELATIONS WITH AFFILIATED COMPANIES

(in EUR) 2005 2004

With affiliated companiesLong-term debtShort-term debt

0.00 0.000.00

0.00 0.000.00

With companies in which the Group owns shares but which are not consolidatedSharesLong-term debtShort-term debt

141,284.36139,959.50

01,324.86

172,178.14139,412.86

0.0032,765.28

NOTE 18: FINANCIAL RELATIONS WITH THE DIRECTORS OF THE CONSOLIDATING COMPANY

(in EUR) 2005 2004

Total compensation for service 157,607.19 130,245.00

Total advances and credits granted by the consolidating company or a subsidiary 0.00 0.00

NOTE 19: CAPITAL AND WARRANT PLANS

(in EUR) 2005 2004

Number of shares issued 1,615,960 1,615,960

Number of allotted warrants 134,545 134,545

Number of warrants exercised as of December 31 69,865 76,625

Number of diluted shares 1,685,825 1,692,585

Details of warrant plan assets as of December 31, 2005

Plan number Plan duration Last fiscal year Number of exercisable

warrants

Average price

D 5 years June 2006 25,465 26.87 €

E 5 years June 2008 44,000 15.83 €

Stock option plan charge for fiscal year 2005 is negative 5,852 Euros

NOTE 20: NONCURRENT ASSETS INTENDED FOR SALE

2005 2004

Medium-term assets 427,197.00 0

of which gross value 1,180,483.00 0

of which cumulative depreciation (753,286.00) 0

Companies to sell 0 568,864.80

Noncurrent assets intended for sale in 2005 have to do with medium-term assets acquired when developing Nespresso

products. In 2004, they have to do with the sale of Fountain CZ, s.r.o.

NOTE 21: EVENTS AFTER THE END OF THE FINANCIAL YEAR

The Fountain Group announced in January 2006 that it intended to subcontract the production of its machines, and

therefore to close its production unit in Great Britain at the end of 2006. The impact of this plan will be taken into account

for fiscal year 2006 and is estimated to be around 1 million Euros.

53


NOTE 22: ADDITIONAL INFORMATION REGARDING THE ESPRESSO PRODUCT LINE

During 2005, the Group reached an agreement with Nestlé concerning the termination of operations related to Nespresso

Professional products in France. This agreement will allow the Fountain Group to quickly reposition itself in the French

espresso market and to reinvest in internal and external growth initiatives related to its primary mission of distributing

drinks within businesses.

Simultaneously, during the fourth quarter of 2005, the Group launched sales of its new espresso product line in partnership

with illycaffé.

The Fountain Group only recognizes the OCS as a market segment. The discontinuation of Nespresso product distribution

and Nespresso products being replaced with illycaffé products is a brand change within a product line.

As was announced publicly at the time, the sum transferred from Nespresso back to the Fountain Group is around

5.5 million Euros. In 2005, the Nespresso Professional products represent around 40% of sales for the Fountain Group’s

consolidated EBITDA.

SHAREHOLDER AGENDA date

Publication of the 2005 annual report beginning of May 2006

Annual Meeting of Shareholders May 29, 2006

2005 capital repayment available for payment (Degroof, Fortis, ING) August, 1st

Announcement of 2006 half-yearly results mid September 2006

Announcement of 2006 annual results mid March 2007

54


2005 CORPORATE ANNUAL ACCOUNTS (ABBREVIATED VERSION)

In accordance with Article 105 of the Code des Sociétés, the corporate annual accounts for Fountain S.A. (formerly

Fountain Industries Europe SA) for the 2005 financial year are shown in abbreviated form.

In adherence with the Belgian law governing corporate entities, the management report and the company’s statutory

annual accounts, as well as the Auditor’s report, are filed with the National Bank of Belgium and kept on hand at the

company’s headquarters, available for consultation by its shareholders.

The Auditor approved the corporate accounts of Fountain S.A. without reserve.

1. STATUTORY BALANCE SHEET AFTER APPROPRIATION

(in thousands of EUR) 2005 2004

FIXED ASSETS 50,455 59,603

I. Formation expense 0 0

II. Intangible fixed assets 862 777

III. Tangible fixed assets 807 1,163

IV. Financial fixed assets 48,786 57,663

CURRENT ASSETS 8,003 3,754

V. Long-term debt 2,637 0

VI. Stocks and orders in progress 558 613

VII. Short-term debt 4,308 2,921

VIII. Investments 300 0

IX. Cash at bank and in hand 106 144

X. Deferred charges, accrued income 94 76

TOTAL ASSETS 58,458 63,357

(in thousands of EUR 2005 2004

CAPITAL AND RESERVES 44,242 39,015

I. Paid-up Capital 26,160 26,160

II. Share premium account 32 32

III. Revaluation surpluses 0 0

IV. Reserves 5,051 4,902

V. Accumulated profits 12,999 7,921

VI. Investment subsidies 0

PROVISIONS, DEFERRED TAXES 110 187

VII.A. Provisions for liabilities and charges 47 62

VII.B. Deferred Taxes 64 125

CREDITORS 14,106 24,155

VIII. Long-term debt 6,596 11,859

IX. Short-term debt 7,452 12,211

X. Deferred charges, accrued income 58 85

TOTAL LIABILITIES 58,458 63,357

55


2. CORPORATE PROFIT AND LOSS ACCOUNT

(in thousands of EUR) after allocation 2005 2004

I. OPERATING INCOME 16,901 15,449

A. Sales 15,350 14,518

B. Increase (+), decrease (-) of goods in progress, finished good inventory and contracts in progress

(42) 8

C. Non performing income 0 0

D. Other operating income 1,593 923

II. OPERATING CHARGES 13,153 11,717

A. Raw materials, consumables and goods for resale 7,409 6,903

B. Services and other goods 2,601 2,250

C. Compensation, social security charges and pensions 1,924 1,717

D. Depreciation and write-offs on fixed assets (+ allowance) 756 644

E. Depreciation and write-offs on inventory and receivables (+ allowance)

143 135

F. Increase (+), decrease (-) in provisions for liabilities and charges (14) (1)

G. Other operating expenses 334 70

III. OPERATING PROFIT (+), LOSS (-) 3,748 3,732

IV. Financial income 3,617 840

V. Financial charges (745) (968)

VI. PROFIT (+), LOSS (-) ON OPERATION 6,621 3,604

VII. Extraordinary income 17 3

VIII. Extraordinary charges (273) (276)

IX. PROFIT (+), LOSS (-) BEFORE TAXES 6,365 3,330

IX.b Transfers to/from deferred taxes 61 29

X. Income tax (1,199) (984)

XI. PROFIT (+), LOSS (+) FOR THE PERIOD 5,227 2,375

XII. Transfers to/from immune reserves 119 55

XIII. PROFIT (+), LOSS (-) FOR THE PERIOD TO BE APPROPRIATED 5,346 2,430

A. Transfer to legal reserve (267) (122)

B. Transfer to other reserves 0 0

C. Dividends 0 (970)

D. Retained earnings (12,999) (7,921)

56


3. REVIEW OF CAPITAL

Number of shares

Total number

of shares

Amount of capital

A. PAID-UP CAPITAL

March 23, 1972 Incorporation 600 600 600,000 BEF

September 26, 1980 Inclusion of reserves in capital 0 600 5,000,000 BEF

December 24, 1986 Capital increase 12 612 5,100,000 BEF

Capital reduction (580) 32 266,675 BEF

Inclusion of reserves in capital 0 32 1,250,000 BEF

February 15, 1995Split of shares; 125 new for one old

0 4,000 1,250,000 BEF

December 19, 1997 Capital increase 1,328,000 1,332,000 416,250,000 BEF

March 24, 1999Capital increase (exercise of warrants)

88,730 1,420,730 490,525,883 BEF

April 27, 1999 Capital increase (IPO) 250,000 1,670,730 576,842,176 BEF

Inclusion of share premium amount in capital

0 1,670,730 1,055,284,483 BEF

Capital conversion in Euros 0 1,670,730 26,159,819.01 EUR

December 26, 2001 Cancellation of shares (54,770) 1,615,960 26,159,819.01 EUR

B. UNSUBSCRIBED AUTHORIZED CAPITAL

Extraordinary General Meeting of March 24, 1999confirmed by the Extraordinary General Meeting of May 30, 2001 and of December 14, 2005

7,436,806 EUR

4. SECURITIES PORTFOLIO

Number of share held


Equity onDecember 31,

2005(*)

2005 Results

2005

Fountain France SAS 6 0.06% 7,573,199 EUR 191,048 EUR

Fountain International SA 1 0.08% (861,053 EUR) (2,823,514) EUR

Fountain First NV 899 99,89% 488,034 EUR 209,233 EUR

Fountain Industries Brussels SA 199 99,50% (81,692 EUR ) (88,103) EUR

Fountain Netherlands Holding BV 60,000 100.00% 21,132,238 EUR (282,158) EUR

NewCaffè Importateur SAS 2,997 99.90% 1,868,628 EUR 852,766 EUR

(*) Any dividends with respect to 2005 are not deducted from the equity of the companies concerned.

57


For additional information:

Pascal Wuillaume, Fountain S.A.

[email protected]

Tel +32-2-389 08 10

Fax + 32-2-389 08 14

Responsible editor

Michel Malschalck

Redaction & Production

Comfi & Publishing

Fountain S.A.

VAT be: 412.124.393

Tel: +32 2/389 08 10

Fax: +32 2/389 08 14

website:

http://www.fountain-group.com

Nederlandse versie verkrijgbaar op verzoek

Version française disponible sur demande

FOUNTAIN INTERNATIONAL S.A. Avenue de l’Artisanat 17, B-1420 Braine-l’Alleud, Belgium

FOUNTAIN FRANCE SAS Boulevard de la Libération 6, F-93200 Saint-Denis, France

FOUNTAIN INDUSTRIES UK LTD Reydon Business Park, Reydon Southwold, Suffolk IP18 6DH, United Kingdom

FOUNTAIN IMPORTING COMPANIES

FOUNTAIN PRODUCTION SITE

FOUNTAIN S.A. Avenue de l’Artisanat 17, B-1420 Braine-l’Alleud, Belgium

FOUNTAIN MANUFACTURING LTD Reydon Business Park, Reydon Southwold, Suffolk IP18 6DH, United Kingdom

ANNUAL REPORT 2005

TABLE OF CONTENTS

Key numbers

Profile 1

President’s Message 2

CEO’S Message 3

Management and Corporate governance 5

Management report 9

Products and services: a total solution 13

Personnel and Distributors:

an effective network 19





Appendices to the 2005 consolidated

accounts 32



Fountain S.A.

VAT be 0412.124.393

Tel. +32 2 389 08 10 – Fax +32 2 389 08 14

website: www.fountain-group.com


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