Spector Photo Group - Annual report 2003 · The Spector share: Information for shareholders and...

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much more than just printsExtraFilm.comExtraFilm.com

ExtraFilm.commuch more than just prints 20032003Annual Report

On 13 April 2004, the Belgian Commission for Banking, Finance, and As-surance (CBFA) granted Spector Photo Group NV the authority to use the annual report under consideration as reference document for any public appeal that the company might make. This falls within the framework of the Law of 22 April 2003, following the procedures for providing separate information.

The framework of this procedure requires that the annual report under consideration be complemented by a memorandum on the operation. thus comprising a prospectus as referred to in Chapter IV of the Law of 22 April 2003.

This prospectus must then be submitted for approval to the Belgian Commis-sion for Banking, Finance, and Assurance (CBFA) in accordance to Chapter IV of the Law of 22 April 2003.

This report is available in Dutch, English, and French. Spector Photo Group NV has verifi ed the conformity between the various texts and assumes respon-sibility for it. The English and French versions are a translation of the Dutch annual report. Only the Dutch reference document has evidential value.

The documents pertaining to the issuing organization that are mentioned in this report are available at Spector Photo Group NV, Kwatrechtsteenweg 160 at B-9230 Wetteren, Belgium. Please contact Dorrit Hondius, legal advisor, for an appointment by calling +32/9/365 99 05.

Ce rapport est disponible en anglais, français et néerlandais. Pour des copies additionelles, veuillez contacter Marianne Staelens (tél. +32/9/365 98 10) ou veuillez visiter notre site sur l’internet www.spectorphotogroup.com.

Dit verslag is beschikbaar in het Engels, het Frans en het Nederlands. Voor aanvullende exemplaren, contacteer Marianne Staelens (tel. +32/9/365 98 10) of bezoek onze Web site www.spectorphotogroup.com.

Responsible Editor: Tonny Van Doorslaer

Press & Investor Relations: Chris Van Raemdonck

Spector Photo Group N.V.Kwatrechtsteenweg 160 • B-9230 Wetteren • Belgium • Tel.: +32 9 365 98 11 • Fax: +32 9 365 98 98 • H.R. Dendermonde 24.107 • V.A.T. BE 405.706.755 • www.spectorphotogroup.com

The image defi nes the format The peculiar format of this brochure is not a random choice.

‘Landscape’ instead of ‘portrait’The landscape format is closest to the normal hum sight. That is why movies are shown in landscape format, and why most image screens (TV, PC, etc.) are designed the same way. By selecting a landscape format for its annual brochure, Spector wants to underscore its involvement in the world of imaging – where its core activities are situation.

Height/width ratio? Flexible!Various height/width ratios are being used to show images. Every one of us is familiar with the classic TV set, though many TV programmes are already broadcasted in the 9/16 format. The most recent TV screens are already adjusted to this new format.In photography, too, a similar transition is taking place. The traditional, analogue picture format has a 2/3 ratio, which corresponds with photo prints of 10/15 cm and 20/30 cm. When, in 2002, digital photography started to break through on the consumer market, most digital still cameras provided the ¾ format. This format yields photo prints of 10/13 cm or 13/18 cm. In the course of 2003, more and more digital camera models entered the market that are equipped with a format selector op-tion: ¾ or 2/3. Consequently, the consumer can have the pictures that are taken with these cameras printed in different formats: 10/13cm and 10/15 cm (series 10), 13/17 en 13/18 (series 13).

For Spector, the key word in this respect is “fl exibility”. The consumer is entitled to have a “correct print” regardless of the exposure format that he has selected. No white borders on the left and right hand side of the print.

Nor cropped images.To refl ect Spector’s know-how in the fi eld of digital imaging, this brochure is designed in the ¾ format.

3/4 format

2/3 format

Key figures

Key figures: Audited figures (consolidated), in EUR ‘000

Profit & Loss accountOperating incomeTurnoverTurnover from comparable activities (consolidation circle 2003, management figures)Operating result - EBITEBIT as % of turnoverFinancial resultResult from ordinary activitiesResult from ordinary activities as % of turnoverResult from ordinary activities before depreciation goodwillResult from ordinary activities before depreciation goodwill as % of turnoverExtraordinary resultProfit/(loss) before taxes - EBTEBT as % of turnoverTaxesProfit/(loss) for the periodShare in the result of the companies with equity methodConsolidated resultMinority interestsConsolidated result (share of the group)

31/12/2003

392,320.9

376,845.5

376,845.5

16,105.1

4.3%

(5,835.1)

10,270.0

2.7%

12,485.3

3.3%

1,339.5

11,609.6

3.1%

(2.583.3)

9,026.3

0.0

9.026.3

901.9

8,124.4

Cash flow dataOperating result - EBITDepreciations of goodwillDepreciations and other non-cash elementsTotal depreciationsOperating cash flow - EBITDAEBITDA as % of turnoverCash flow from ordinary activitiesCash flow from ordinary activities as % of turnoverNet cash flowNet cash flow as % of turnover

31/12/2003

16,105.1

2,215.3

28,473.5

30,688.8

46,793.9

12.4%

41,079.7

10.9%

35,507.3

9.4%

Balance sheet figuresBalance sheet totalNet financial debtSolvency ratioGearing ratioCurrent ratio

31/12/2003

236,067.1

84,074.5

23.5%

1.51

0.94

Terminology• EBIT = Operating result• EBITDA = Operating cash flow = Operating result + [operating depreciations, amortizations and provisions]• EBT = Earnings (profit/loss) Before Taxes• Result from ordinary activities = Result after financial results, but before taxes and before extraordinary results

• Cash flow from ordinary activities = Operating cash flow + financial result, but excluding financial non-cash costs• Net cash flow = Net result + [depreciations, amortizations and provisions] + [financial an extraordinary non-cash cost and deferred taxes]• Net financial debts = financial debts – [cash at bank and in hand + Investments]• Solvency ratio = (Shareholder’s equity + Minority interests) / balance sheet total• Gearing ratio = Net financial debts / (Shareholders’ equity + Minority interests)• Current ratio = Current assets / Amounts payable within one year

The Spector share:

Information for shareholders and investorsThe share Spector Photo Group is listed on Euronext Brussels and is traded on the continuous

market.

• ISIN code: BE0003663748 • SRW code: 3663.74 • Stock code: SPEC

There are 6,761,253 shares listed, of which 3,955,413 are distributed among the public (free float of

58.5%). A detailed overview of the shareholder structure can be found on page 9 of this

document.

Key figures per share Number of sharesShareholders’ equity per shareEBIT per shareEBITDA per shareEBT per shareResult from ordinary activities before depreciation of goodwill, per shareResult from ordinary activities per shareCash flow from ordinary activities per shareNet cash flow per shareShare of the group in the consolidate result per shareShare of the group in the consolidate result per share before depreciation of goodwillGross dividendShare price per 31 December

31/12/2003

6,761,253

6.05

2.38

6.92

1.72

1.85

1.52

6.08

5.25

1.20

1.53

0.36

12.50

Financial serviceSpector Photo Group uses Fortis Bank for the financial service on behalf of the shareholders.

Share price Spector/Bel 20 Index

Volumes January 2001 - December 2003

31/12/2002

395,967.2

380,880.7

380,880.7

18,743.0

4.9%

(7,275.1)

11,468.0

3.0%

13,681.8

3.6%

(4,349.1)

7,118.9

1.9%

(1,726.3)

5,392.6

-4,200

1,192.6

947.1

245.4

31/12/2001

545,058.3

515,457.6

379,031.0

11,179.7

2.2%

(10,862.8)

316.9

0.1%

4,463.6

0.9%

(14,925.8)

(14,608.9)

-2.8%

(2,240.6)

(16,849.5)

0

(16,849.5)

1,733.8

(18,583.3)

03/02

-0.9%

-1.1%

-1.1%

-14.1%

19.8%

-10.4%

-8.7%

130.8%

63.1%

67.4%

656.9%

-4.8%

3210.6%

31/12/2002

18,743.0

2,213.8

26,565.0

28,778.8

47,521.8

12.5%

40,176.0

10.5%

31,558.3

8.3%

31/12/2001

11,179.7

4,146.7

41,384.2

45,530.9

56,710.6

11.0%

44,905.0

8.7%

28,735.0

5.6%

03/02

14.1%

0.1%

7.2%

6.6%

-1.5%

2.2%

12.5%

31/12/2002

253,404.1

94,813.0

20.5%

1.82

1.05

31/12/2001

279,019.8

101,471.2

19.1%

1.90

1.12

31/12/2002

6,761,253

5.52

2.77

7.03

1.05

2.02

1.70

5.94

4.67

0.04

0.36

0.12

11.45

31/12/2001

5,580,898

5.23

2.00

10.16

-2.62

0.80

0.06

8.05

5.15

-3.33

-2.45

-

10.60

5/01/2001

23/02/2001

12/04/2001

1/06/2001

20/07/2001

7/09/2001

26/10/2001

14/12/2001

8/02/2002

28/03/2002

17/05/2002

5/07/2002

23/08/2002

11/10/2002

29/11/2002

17/01/2003

7/03/2003

25/04/2003

13/06/2003

1/08/2003

19/09/2003

7/11/2003

31/12/2003

16

14

12

10

8

6

4

2

0

5/01/2001

23/02/2001

12/04/2001

1/06/2001

20/07/2001

7/09/2001

26/10/2001

14/12/2001

8/02/2002

28/03/2002

17/05/2002

5/07/2002

23/08/2002

11/10/2002

29/11/2002

17/01/2003

7/03/2003

25/04/2003

13/06/2003

1/08/2003

19/09/2003

7/11/2003

31/12/2003

16000

14000

12000

10000

8000

6000

4000

2000

0

16

14

12

10

8

6

4

2

0

Share price in EUR Volume

Spector Bel 20

Profile 240 years of growth and innovation 3Snapshots 2003-2004 4Corporate governance 6Letter to the shareholders 10Report of the Board of Director on the consolidated financial statement 11 Retail 16 Mail Order 24 Other activities 27 « Navigating the future » 29 IAS/IFRS 31 Comments to the consolidated financial statement 2003 33Consolidated financial statement 2003 43Notes 45Bases of consolidation and valuation 57Reports of the committee of statutory auditors 60Report of the Board of Directors on the parent company accounts 62Parent company accounts 64Summary of the bases of valuation 68General information on Spector Photo Group 70

Table of contents:

Photofinishing… what exactly does that mean?Mail Order photofinishing… is it really more convenient?

Online photofinishing… you don’t even have to be a kid to make it work!

The Pixbox kiosk… how does it work?

Find videoclip answers to these and other questions on the enclosed CD. It also contains a presentation complementing the ‘Navigating the future’ chapter in the

brochure. In fact, you can read the entire brochure in PDF format on the disk.

Was the CD missing from your brochure or do you need an extra copy? Contact Marianne Staelens by email at [email protected] or

give her a call at +32 (0)9 365 98 10.

1Share informationSpector Photo Group

Communication to shareholders and investors

Spector Photo Group attaches great importance to a regular and transparent communication to shareholders and investors.For information about the company, shareholders and investors are kindly invited to visit the trilingual (English-French-Dutch) corporate Web site www.spectorphotogroup.com that includes a separate section “Investor Relations”.

As of 2004, the information provided by the company will be complemented by financial analysts’ reports (in PDF format). In-depth analysts’ reports on the share are published on a regular basis by KBC Securities and Delta Lloyd Securities. In addition, the Flemish association of investor clubs (‘Vlaamse Vereniging van Beleggingsclubs en Beleggers’ - VFB) starts in 2004 with the publication of in-depth analysis on the share.

Interested investors are invited to register themselves on the corporate Web site for a free subscription of all relevant press release of the company. These press releases are simultaneously distributed by e-mail, instantly upon publication.

Already for a number of years, Spector Photo Group is a regular participant at investors’ fairs and events, with the aim to be in direct contact with private investors. In 2004, Spector partici-pated at:• VFB Investor Day, 20th March 2004, Deurne (Belgium)• Cash! Day of the Belgian Share, 27th March 2004, Zellik

(Belgium)For its efforts in this area, Spector Photo Group has been elected by the VFB in 2003 for the second consecutive year as nominee for the award of the best financial information in the category for small and mid-caps.

Market capitalization

EUR 59.2 milllion

EUR 77.4 milllion

EUR 84.5 milllion

EUR 54.2 milllion

EUR 87.9 milllion

EUR 88.5 milllion

Closing rate

EUR 10.60

EUR 11.45

EUR 12.50

EUR 8.01

EUR 13.00

EUR 13.09

Relevant data 31st December 2001 31st December 2002 31st December 2003 lowest day closing rate 2003 highest day closing rate 2003 highest “intraday” rate 2003

Total volume of shares traded in 2003 (248 trading days) 549 334 sharesAverage daily share volume 2003 2 215 shares

Total number of trades in 2003 2 554 ordersAverage daily order volume in 2003 10.3 orders

Velocity 2003 (volume of shares traded as % of the total number of shares) 8.12%Total number of shares traded in 2003 versus “free float” 13.90%

Total turnover 2003 (248 trading days) EUR 6.1 millionAverage daily turnover 2003 EUR 24 599

Shareholder calendar

Thursday 6 May 2004 : Publication of first quarter 2004 resultsWednesday 12 May 2004 : Annual Meeting of Shareholders 2003Monday 21 June 2004 : Payment of dividendThursday 2 September 2004 : Publication of mid-year 2004 resultsThursday 28 October 2004 : Publication of third quarter 2004 resultsThursday 3 February 2005 : Publication preliminary turnover 2004Wednesday 10 March 2005 : Publication 2004 results

2 Spector Photo Group

Spector Photo Group is a diversified group in imaging and multimedia.

Spector Photo Group has grown from its Belgian roots to become a major European player in analogue and digital photofinishing. It operates principally through the mail order channel. The Group also operates a retail network for multimedia products with direct sales operations in eleven European countries. Spector Photo Group employs 1,650 people.

Spector Photo Group is in direct contact with the consumer through four main brand names: Spector, Photo Hall, ExtraFilm, and Maxicolor.

Spector envisions a rapid convergence of media, with vari-ous user applications integrated into a single multimedia

device. This evolution will yield more applications and possibilities than ever before. The main consumer criteria will be benefits without higher complexity.Spector is convinced that there is much more to con-sumer satisfaction than merely offering products. Consum-ers are looking for total solutions that integrate products and services.Spector has noted that consumer lifestyles are currently characterized by increased mobility and more intense demands on time. Consumers want a solution for every problem, regardless where they are or the time of day. The Group has to offer solutions through multiple channels in order to meet these demands. Spector will adjust its organization and functions to this vision. The current core activities of the Group (retail sale of multimedia products and mail order photofinishing) are an ideal platform to accomplish this goal.

Spector Photo Group has taken this vision as the basis for defining its mission to provide the best solutions for imaging and multimedia applications to the consumer. The leisure time of the consumer is at the core of everything the Group undertakes. Spector will continue to build direct and preferred relationships with consumers through multiple channels and through partnerships. Spector will focus on the European market, in this respect.

Spector Photo Group has defined, within the framework of its mission, its ambition to fulfil a trend-setting role in the markets in which the Group operates. Spector also has the ambition to sustain the turnover from its current activities and to gradually complement it with new income flows. To this end, the Group will look for opportunities to engage in partnerships.

Profile

3Spector Photo Group

40 years of growth and innovation

1964 : George and Jules De Buck – two brothers – and their brother-in-law Jerôme Mussche start a photofinishing company. The company is named DBM Color, referring to the initials of their family names and is based in Wetteren (Belgium).

1976 : Creation of the Spector logo (but without the corresponding brand name).

1977 : Creation of the Spector name as a registered brand.

1980: With the appointment of Johan Mussche, son of co-founder Jerôme, as president of the Board of Directors, the second genera-tion makes its entrance. Together with Wim De Buck, and Hendrik De Buck, Johan forms the management team of the company. Later, this team is expanded with the addition of Dominique le Hodey and Tonny Van Doorslaer.

1982 : Expansion to the Netherlands and the creation of a joint-venture for mail order activities in France, together with the Swedish partner ExtraFilm.

1984 : Launching of the “24 hours or free of charge” photofinishing concept.

1985-90 : First acquisition of Belgian companies in the sector, including Tecnocrome and Fotronic.

1990 : Acquisition of ExtraFilm, whose mail order activities include full coverage of Scandinavia as well as the French market since 1982.

Acquisition of Prominvest, resulting in the Group’s indirect listing on the stock exchange.

1994 : Spector acquires Racine, a major player in the French industry.

1995 : Seventy per cent participation in Bilderland, market leader in the Austrian photo market. Sixty-five per cent participation in the Swiss ExtraFilm mail order joint-venture.

1996 : Acquisition of the European mail order company Maxicolor. Agreement with the Swiss Interdiscount Group to acquire the Photo Porst retail chain operating in Germany and the Czech Republic, Föfoto in Hungary, and Photo Hall in Belgium. The agreement also led to the full control over Bilderland and ExtraFilm Switzerland.

Spector pioneers a photo Web site on the Internet.

1998 : Public offering of 46% of the Photo Hall shares on the Brussels Stock Exchange, enabling Photo Hall to acquire the Luxemburg electronics retailer Hifi International.

1999 : Creation of an e-commerce and digital photo department.

2000 : Photo Porst experiences disappointing year-end sales. The margins for wholesale photofin-

ishing come under pressure. In October, president Johan Mussche an-

nounces that he wants to draw back from the daily operations for health reasons. Luc Vansteenkiste is named vice-president of the Board of Directors, while managing director Tonny Van Doorslaer will chair the manage-ment team.

2001 : Launch of the Renaissance Plan to restore the structural financial health of Spector Photo Group and also help the Group to prepare for the future. Divestiture of German retail activities (Photo Porst). Strategic withdrawal from the subcontracting market for photofin-ishing services on behalf of large retail chains through divestiture of almost all wholesale activities in Germany, France, and Austria.

On August 1, Johan Mussche dies after a long period of illness. Luc Vansteenkiste becomes president of the Board of Directors. The cur-rent Executive Committee assumes the daily management of the group.

2002 : The Renaissance Plan results in a significant reduction in the Group’s debts, a strength-ened financial position, and new perspectives on the future of the Group with its restored profitability.

2003-04 : The Group prepares itself for its future in multimedia.

From right to left :George De Buck, Jules De Buck and

Jerôme Mussche in meeting with the architect about the first building plans.

4 Snapshots Spector Photo Group

2003JanuaryFor the second consecutive month, Photo Hall sold more digital still cameras than traditional film-based cameras. This trend continued throughout 2003.

FebruaryAgainst the general trend of the PC market, Photo Hall generated good sales figures with the Jetcom™ PC. This high-end PC, assembled by Photo Hall as a private brand, is offered to the Belgian consumer at a competitive retail price.

MarchSpector Photo Group closed the first quarter with strong figures, despite an unfavourable economic climate.

AprilSpector launches “Photoscan on VCD” in Belgium and the Netherlands. When forwarding their analogue film for developing, consumers can also have the pictures scanned directly onto a Video CD. This enables the consumers to watch their photos on a PC as well as on TV when it is connected to a DVD player.

MayThe French postal services strike had negative consequences for the mail order photofinishing activities of ExtraFilm and Maxicolor throughout France.

JuneFor the first time ever, Spector Photo Group closed the first half of the year with a positive net result. Normally the Group is heavily dependent upon seasonal photofinishing activities in the second half of the year.

JulyMaxicolor, the Belgian mail order organization, began processing MMS photo post cards for Proximus subscribers. Maxicolor also launched its “MMS 10 Pack”. Multimedia Messaging Services (MMS) enables mobile phone users to also communicate with images (including photos) as well as much more extensive text messages.

AugustExtraFilm became the first photofinisher in the Swiss market to launch a digital order form. The user-friendly DigitOrder software enables the consumer to prepare digital images on their home PC before ordering prints. Once finished, the order can be burned onto a CD which can be forwarded to the lab by mail.

SeptemberSpector Photo Group conducted market tests of its new pan-European Web site for online photofinishing using the brand name ExtraFilm.com. Also in September, ExtraFilm France opened its online photofinishing Web site, using the same technology platform as ExtraFilm.com.

OctoberFilmobel, a Group company acquired the business of Positif photoGroup, a co-player on the Belgian market. The integrated organization immediately became Belgium’s largest for purchasing photo-related products (excluding photofinishing services) on behalf of independent photo retailers.

Snapshots

5 Snapshots Spector Photo Group

Snapshots 2004NovemberSpector Photo Group acquires Omninet, the French company which started the successful photo album Web site www.wistiti.fr already four years ago. Wistiti enables consumers to create an album with their digital photos for free. They can also order photo prints via this site.

DecemberPhoto Hall Belgium distributed a special door-to-door folder on the occasion of its 70th Anniversary. The first

Photo Hall outlet opened in 1933, in Blankenberge at the Belgian seaside.Photo Hall Hungary continued its realignment with the Belgian Photo Hall concept. By outsourcing its photofinishing, a number of fixed costs become variables – thus making the Hungarian organization more flexible and able to assign the newly available resources to implementing the new strategy.

2004FebruaryThe annual conference of the Photo Marketing Association (PMA) takes place in Las Vegas in the US. Traditionally, this is the largest photofinishing trade fair in the world. The leitmotif at this conference is the renewed belief in the future of the sector.

AprilSpector completes the installation of its first high-capacity line for digital photofinishing in the Wetteren lab (Belgium). Previously, the Group processed digital prints using a set of minilabs.Spector introduces the new version of the familiar Spector card, that offers additional attractive advantages for the digital photo amateur.

MayThe European Union will be enlarged with ten new member-states, including Hungary. Spector is present in this country through its Photo Hall multimedia retail chain.

SeptemberPhotokina 2004, the biannual trade fare for photography, will take place in Köln, Germany. The Fair’s slogan – “Imaging is More” – refers to the growing convergence of media. This trend is also reflected in the fact that Microsoft, Nokia, and Deutsche Telekom will all have a major presence at this forum.

DecemberIn this month 40 years ago, the founders’ vision was formalized; creating the company that was to become what is today known as the Spector Group. The founders were already taking the required preparatory steps earlier in 1964.

The headquarters in Wetteren (Belgium) anno 1964-1965

6 Corporate Governance Spector Photo Group

Corporate GovernanceComposition of the Board of Directors and the Board Committees

Name Function (expiry date of current mandate) –

Main function outside Spector Photo Group Mr Luc Vansteenkiste Chairman (May 2005) – Independent, Non-executive Director – Managing Director Recticel N.V. – Chairman ‘Verbond van Belgische Ondernemingen’ (VBO)Mr Dominique le Hodey Vice-chairman (May 2005) – Executive DirectorMr Tonny Van Doorslaer Managing Director (May 2005)Mr Werner Bruggeman Independent, Non-executive Director (May 2005) Partner-Director Vlerick Leuven Gent Management School, Director Van de Velde N.V.Capital & Finance N.V. Independent, Non-executive Director, represented by Mr Bernard Woronoff, Managing Director Capital & Finance N.V. (May 2005)De Bommels N.V. Non-executive Director, represented by Mme Marijke Mussche-Vermeiren (May 2005)Mr Wim De Buck Executive Director (May 2005)Mr Hendrik De Buck Non-executive Director (May 2005)Lessius N.V. Non-executive Director, represented by Mr Wilfried Vandepoel, Managing Director Lessius N.V. (May 2005)Mr Hubert Libert Non-executive Director (May 2005)Mr Jonas Sjögren Non-executive Director (May 2005)Mr Diederik Vandekerckhove Executive Director (May 2005)Mme Isabelle Vlerick Non-executive Director (May 2005)Mr Philippe Vlerick Non-executive Director (May 2005) Managing Director BIC Carpets N.V.

Audit Remuneration Appointment Committee Committee Committee

Legend: = Member of the respective committee = Chairman of the respective committee

7 Corporate GovernanceSpector Photo Group

Corporate Governance: Changes in the composition of the Board of Directors during 2003

At the beginning of 2003, Mme Isabelle Vlerick was ap-pointed by the Annual Shareholder’s Meeting of 12 May 2003 as Director for a two year mandate, replacing Mr Philippe Croonenberghs, who had tendered his resignation.

Proposals to the Annual Shareholder’s Meet-ing of 12 May 2004 to modify the composi-tion of the Board of Directors

Since mid-2003, Mr Libert no longer represents shareholder Mercator Bank & Verzekeringen, by whom he was initially nominated. This led Mr Libert to tender his resignation. The appointments committee has subsequently identi-fied Mr Patrick De Greve as a potential candidate having the required profile. Mr De Greve is partner and General Director of the Vlerick Leuven Gent Management School. Considering this function, he can share his management know-how, which is extremely valuable for companies in a transition phase. Furthermore, Mr De Greve also has access to a network of entrepreneurs and innovators, which is im-portant when implementing the strategy for the company’s future. Mr De Geve does not hold shares or share options of Spector Photo Group. Neither has he any other business relation with the group. As a consequence, he can act as an

independent director. Therefore the committee will first pro-pose to the Annual Shareholder’s Meeting of 12 May 2004 to accept Mr Libert’s request for his honourable resignation. Subsequently, the committee will propose to appoint Mr de Greve as independent director with a two year mandate. At the same occasion, all other independent directors will be confirmed as such.

Nine directors represent the reference share-holder

Of the fourteen members of the Board of Directors of Spector Photo Group, six directors come from the circle of family shareholders, who have grouped their interests in the ‘Stichting Administratiekantoor Consortium ex-IPG’. These are: De Bommels N.V. (represented by Marijke Muss-che), Hendrik De Buck, Wim De Buck, Dominique le Hodey, Jonas Sjögren, and Tonny Van Doorslaer.Three directors are nominated by the financial investors within Fotoinvest C.V.B.A.. These include Isabelle Vlerick, Philippe Vlerick, and Lessius N.V. (represented by Wilfried Vandepoel).

Written agreements on pre-emptive rights and exit ar-rangements exist at the level the foundation ‘Stichting Administratiekantoor Consortium ex-IPG’. In essence, these arrangements stipulate that when a shareholder of

the “Stichting” wishes to exit, the other shareholders are granted a pre-emptive right to purchase their shares. On the level of Fotoinvest C.V.B.A., there are written agree-ments on exit arrangements. In these ways, the stabil-ity within the reference shareholder’s circle is optimally assured.

Independent directors

Of the fourteen members of the Board of Directors, three are independent directors, who are also non-executive. These include Luc Vansteenkiste, Werner Bruggeman, and Capital & Finance N.V. (represented by Bernard Woronoff).

These directors declare that they are independent of the management and the dominant shareholders, and that they have no business or other relationship with the company that might influence their independent judgement.As already indicated above, Mr De Greve will be nomi-nated for appointment as the fourth independent director.

Activities and role of the Board of Directors

In 2003, five meetings were held under the presidency of Luc Vansteenkiste. Although the Articles of Association state that decisions must be taken by majority vote, all decisions in 2003 were taken by consensus.

8 Corporate Governance Spector Photo Group

Compensation and interests of members of the Board of Directors

Executive directors are not compensated for their man-dates as director. Non-executive directors are granted an annual compensa-tion of EUR 12,395 each, in recognition of their presence at board meetings. Non-executive directors are not entitled to subscribe to the share option plans currently in force (see page 74). Non-executive directors are not granted any remuneration, nor any other advantages in kind from any company in the group other than Spector Photo Group N.V.. In total, the members of the Board directly hold 2,159 shares of Spector Photo Group. Certain directors have an indirect shareholder’s interest through Fotoinvest C.V.B.A., the ‘Stichting Administratiekantoor Consortium ex-IPG,’ and the VIT consortium (cfr. Scheme on page 9).Only executive directors were entitled to subscribe to the share option plans currently in force. Executive directors possess 34,300 options in total. None of these have been executed to date. No director is beneficiary of any warrant or loan granted by Spector Photo Group N.V. nor any other associated company.

Committees within the Board of Directors

Three committees have been established within the Board of Directors: the Remuneration Committee, the Audit Committee, and the Appointment Committee. The Board of Directors appoints the members of each committee and assures that committee composition reflects an appropriate balance between executive and non-executive direc-tors, while also assuring that independent directors are sufficiently represented. No specific remuneration is being provided for the members of these committees, apart from

the two non-executive directors with a mandate in the Audit Committee, who are each granted an annual com-pensation of EUR 2,479.90 in addition to their general compensation of EUR 12,395.

Remuneration Committee

The Remuneration Committee consists of three non-execu-tive directors and one executive director. Two members are independent directors. The Remuneration Committee advises the Board of Directors on the remuneration of the Manag-ing Director and the members of the Executive Committee. The Remuneration Committee held one meeting in 2003.

Audit Committee

Following the Audit Committee meeting at which the 2003 figures were discussed, the Managing Director has tendered for his resignation as member of the Audit Committee for reasons of “good corporate governance”. Consequently the Audit Committee consists of two non-executive directors, one of whom must be independent and who chairs the Audit Committee. The Audit Committee meets at least twice a year in the presence of statutory auditors. The Committee’s most important task is to assist the Board of Directors in its supervisory function, and in particular, in its supervision of the provision of financial information to both shareholders and third parties, as well as in its supervision of the system of internal controls and of the audit process.The Audit Committee has only an advisory role vis-à-vis the Board of Directors, which retains collegial responsibility. The conclusions of the Audit Committee on the half-yearly and annual results are submitted to the Board of Directors.

Appointment Committee

The Appointment Committee consists of one executive director and three non-executive directors, of whom two are independent. The Appointments Committee is responsible for nominating the mandates on the Board of Directors that are not put forward by the controlling sharehold-ers. In 2003, the Appointment Committee dealt with the appointment of Mme Isabelle Vlerick as Director, and with the request for the honourable resignation of Mr Libert as director. Early in 2004, the Appointment Committee identi-fied Mr De Geve as candidate for a mandate as independent director.

Management of the Business

The Board of Directors of Spector Photo Group N.V. has delegated the day-to-day management to the Managing Director, Tonny Van Doorslaer.Spector Photo Group has not installed a Management Committee (“directiecomité) a specified by the Belgian Law of 2 August 2002 on Corporate Governance.

Executive Committee

The Managing Director has installed an Executive Commit-tee, which is composed as follows:• Tonny Van Doorslaer, Chief Executive Officer (CEO)• Diederik Vandekerckhove, Chief Operating Officer

(COO)• Stef De Corte, Chief Financial Officer (CF0)• Chris Van Raemdonck, Secretary-General• Dominique le Hodey, Director Strategic Relations

Corporate Governance:

9 Corporate GovernanceSpector Photo Group

Compensation and interests of the Executive Committee members

The total, combined remuneration for the five members of the Executive Committee consists of a fixed and a variable component. In 2003, the cost to the group of the fixed component was EUR 1,194,374. This is a gross amount, i.e. including social security contributions (employer and employee). This amount also includes both direct and deferred salaries, as well as expenses and various remunera-tions – both in cash and in kind. The variable component is determined as a function of a bonus plan which is estab-lished each year by the Remuneration Committee and which contains financial objectives. In 2002, the total cost to the company of this variable component was EUR 599,653.The members of the Executive Committee, including the Director Strategic Relations, have subscribed to a total of 5,700 options under the first plan, to 18,000 options under the second, and to 26,000 options under the third – i.e. 49,700 options in total. None of these options have been exercised to date. The members of the Executive Committee do not hold any shares of the company, with the exception of the executive directors in this committee, whose interest is already mentioned under ‘Compensation and interests of the members of the Board of Directors’. Neither Spector Photo Group, nor any affiliated company, has granted any loan or warrant to the members of the Executive Committee.

Committee of Statutory Auditors

• B.C.V.B.A. PKF, Van Der Steen, Riské, De Weerdt, Lefebvre & Partners, represented by J. Van der Steen, Statutory Auditor (current mandate until 2005).

• Grant Thornton, Lippens & Rabaey B.V.C.V,. represent-ed by J. Lippens, Statutory Auditor (current mandate until 2005).

The Committee of Statutory Auditors are granted an an-nual remuneration of EUR 31,575.00 – in accordance with the decision of the Ordinary General Shareholder Meeting of 12 May 2002. In addition, a total remuneration of EUR 39,666.00 has been granted for activities related to the audit in the associated companies that form a group with Spector.

In the 2003 accounting year, the statutory auditors have been granted an additional remuneration of EUR 80,690.18 for activities that went beyond their regular mandate. These were related to their guidance of the in-ternal working group for the implementation of IAS/IFRS, the scheduled merger of Photo Hall subsidiaries, the liq-uidation of Spector Belgium NV, and the sale and transfer of the activities of Spector Belgium and Photomedia to Filmobel.Beyond these remunerations, no payments or advantages in kind have been made – neither by Spector Photo Group N.V. nor by any of its associated companies.No payments have been made to any persons with whom the statutory auditors would have concluded a cooperative agreement, with the exception of the companies that per-form local audits at the foreign companies of the group. The latter are included in the amounts mentioned above.

Corporate Governance:

10 Spector Photo Group

Letter to the shareholders

Dear Shareholder,

For the third consecutive year, the Group has succeeded in substantially improving its fi-nancial position. Over a three year period (2001, 2002, 2003) the company has paid back EUR 111.6 million financial debts. The net financial debt position (financial debts, reduced with cash at bank and in hand, and investments) totals EUR 84.1 million versus EUR 191.3 million as of 31 December 2000.

But 2003 was also the year during which the future of the industry was being reshaped. For the first time, digital photography became accessible for the average consumer and not just for the limited in-crowd of trendsetters. The growing popularity of the ”cam-phone” (a mobile phone with a built-in digital camera) was another sign of the times that provides a perfect illustration of how various media are converging at an ever-faster speed. Digital technology is also being broadly applied in various other leisure electronics. As a consequence, the differences between the traditional product categorizations of brown and grey goods are becoming less relevant.

In 2003, Spector Photo Group anticipated these emerging trends very well.

In photofinishing – a core activity – Spector clearly demonstrated its fitness to deal with the accelerating changes in the sector better than its competition. Nevertheless, Spector is confronted with a challenge to grow its turnover from digital photofinishing activities at a faster pace. The other core activity is the retail sale of multimedia products, mainly through the Photo Hall chain. In this field, 2003 has also proven to be a strong year for the Group. The commercial success of digital still cameras and camphones was a major factor. But, the Group has also performed well in other, less obvious product categories such as PCs. Above all, Photo Hall was able to maintain its margins while at the same time growing its turnover.

We expect that the trends evident in 2003 will continue in 2004. These trends provide enormous opportunities for a group like Spector, but at the same time they also hold serious challenges. As a demonstration of its faith in the future, the Board of Directors will nevertheless propose to pay out a gross dividend of EUR 0.36.

We ask all stakeholders – shareholders, credit providers, staff, suppliers, and customers – for their continued support for the future development of our company. At this time we also want to thank them for their efforts and their commitment over the past year.

Luc Vansteenkiste Tonny Van Doorslaer Chairman of the Board of Directors Managing Director

11Report of the Board of DirectorsSpector Photo Group

Report of the Board of Directors • Consolidated result (share of the group) reaches historic level• Turnover from core activities has grown by 2%• Financial debts have been reduced by over EUR 110 million in

three years• The Board of Directors has proposed a gross dividend of EUR

0.36 (EUR 0.12 in the previous year)• Spector will play a role in consolidating the European

photofinishing sector and aims for further growth as a diversified multimedia company

The successful completion of our turnaround by the end of 2002 meant a substantial increase in the net profits of Spec-tor Photo Group in 2003. However, the balance sheet and the debt reduction program to which Spector had commit-ted itself for 2003, did not allow the company to react to the opportunities and challenges of the evolving digitization of the market as promptly as we might have wished. Spector intends to sharpen its strategy to take full advantage of these opportunities in the future.

Diversification proves its value

The breakthrough of any new technology is characterized by a first wave of early adopters. This is invariably followed by a second wave during which the public at large discovers the accompanying user services. The initial period generally runs well ahead of sales growth for the accompanying services. This is undoubtedly the case for digital photography. But thanks to the diversification of its activities, Spector Photo Group was well positioned in 2003 during the first wave, to sell digital multimedia devices. At the same time, the Group also situated itself to take advantage of the inevitable second phase for selling digital imaging solutions.

In 2003, Spector achieved 40% of its Consolidated Group Turnover through its organizations that offer photofinish-ing services either as their exclusive or primary product.

The rise of digital photography has coincided with a decline in the sale of film processing and printing of between 8% and 12%. Spector successfully countered this general market trend with the Group outperforming the market on an annual basis until August 2003. Turnover from digital photo services continued to grow (+134.6%), but has not yet compensated for the decrease in analogue photofinishing (-5.0%). The turnover from digital products represents 2.9% of the total photofinishing turnover, versus 2.2% in 2002 and 1.3% in 2001.

The Photo Hall multimedia stores, on the other hand, could greatly benefit from the success of new digital technology products. The photo product category at Photo Hall Belgium demonstrated a 28% growth, telecom +31%, multimedia (PC) +26%, and DVD +11%.

Operating result and Result from ordinary activities

The decrease of the operating result (from EUR 18.7 million to EUR 16.1 million) can be largely explained by two factors. These same factors also apply to the lowered result from ordinary activities (EUR 10.3 million in 2003 versus EUR 11.5 million in 2002).

in EUR million Turnover EBIT EBITDA Net cash flow

2003 2002 2003 2002 2003 2002* 2003 2002

Mail Order 115.4 120.3 12.8 14.4 29.3 31.0 28.5 29.4

Retail 241.2 228.3 7.3 7.6 12.8 12.0 9.3 7.6

Core activities 356.6 348.6 20.1 22.0 42.1 43.0 37.8 37.0

Other activities 20.3 32.3 -4.0 -3.3 4.7 4.5 -2.3 -5.4

Total 376.8 380.9 16.1 18.7 46.8 47.5 35.5 31.6

* The 2002 split per segment has been changed versus the management figures that were published last year. This is related to the imple-mentation in 2003 of refined instruments for segment reporting. Totals for 2002 have remained unchanged.

Turnover 2003 by product group

Turnover 2003 by channel

Note the Report of the

Board of Directors on the

consolidated annual ac-

counts 2003 is included

in this document on the

pages 11 to 42.

MailOrder31%

Others5%

Retail64%

Photo-finishing

37%

Multimediaproducts a.o.

63%

12 Report of the Board of Directors Spector Photo Group

On one hand is the effect from the decreasing volumes for analogue photofinishing, which is not yet fully compen-sated by the increasing digital volumes. This effect is mainly noticeable in the mail order organizations. Because of the fixed costs in the labs, capacity utilization is a strong determinant in the operating result in photofinishing.

On the other hand, there is the impact of organizational changes at Filmobel on the Retail performance. Without these changes, the increase of the operating result of the Retail division would have been more in line with the sales increase in that division. The Belgian subsidiary Filmo-bel transferred its activities and supplies from its site in Aartselaar (Antwerp) to Vorst (Brussels) in the beginning of 2003. Later, in November 2003, Filmobel acquired the business of Positif photoGroup. The stock of both organi-zations has been moved to the warehouse in Vorst, and both organizations have been integrated. This integration caused additional costs in the short run. But the integra-tion will pay off in 2004.

Financial results 2003: interest burden low-ered by debt reduction

The financial results are largely determined by interest paid (EUR 5.85 million), which is about 20% below the 2002 level. This considerable improvement can be mainly attributed to the reduction of financial debts.

Currency exchange differences in 2003 primarily involved the Swedish crown and the Hungarian forint. The EUR 1.4 million in favourable currency exchange differences were countered by EUR 0.6 million in negative differences.This yields a result of EUR 10.3 million from ordinary activities after processing the financial result and after depreciation of goodwill (EUR 2.2 million).

Consolidated result 2003 surpasses EUR 8 million

Extraordinary costs remained limited in 2003. They were mainly determined by the one-off restructuring costs related to the closure of the ‘minilab’ department at Sacap France. Spector also realized EUR 2.4 million of extraordi-nary income. This is in reference to a provision of EUR 2.9 million taken in 2002, related to certain income that Spec-tor had realized from a previously concluded agreement with Pixelnet. As a consequence of the timing of Pixelnet’s bankruptcy, the performances delivered by Spector fell in the ‘freeze period’. Therefore, the trustees of Pixelnet AG expressed their reserves, and Spector made a provision. In order to solve this deadlock, a settlement has been concluded (EUR 0.7 million) which brings a definite end to the initial risk.

Taxes amounted to EUR 2.6 million in 2003, thus bringing the consolidated result after taxes to EUR 9.0 million. This is approximately seven times the level reached in 2002, when Spector made its first net profit since 1999. In 2002, however, the consolidated result was strongly affected by the negative extraordinary result. This result was mainly due to the closing of the global agreement that has been reached in 2001 with Kodak (Europe). The negative amount for the share of the companies with equity method that year was equal to the extraordinary income, thus flattening out the effect on the 2002 consolidated result.

After accounting for minority interests, the share of the Group in the consolidated result is EUR 8.1 million, versus EUR 0.2 million in 2002.

Consolidated balance sheet (after profit al-location): solvency is further restored

For the third consecutive year, a considerable reduction of debts can be noted on the liabilities side. This year, the reduction totals EUR 17.8 million. Financial debts have been reduced by EUR 18.9 million. The company has paid back EUR 111.6 million of financial debts over a three year peri-od (2001, 2002, and 2003). This led to an improvement in the solvency rate (shareholder’s equity including minority interests / total liabilities), which has climbed from 20.5% to 23.5% (after profit allocation) as of 31 December 2003. The net financial debts (financial debts reduced with cash in the bank and in hand, and investments) amount to EUR 84.1 million versus EUR 94.8 million as of 31 December 2003, and EUR 191.3 million as of 31 December 2000. The gearing rate (net financial debts / equity including minor-ity interests) has improved from 1.82 (31 December 2002) to 1.51 (31 December 2003).On the asset side, efforts have been taken to reduce the net working capital (current assets excluding investments, reduced with the short-term non-financial debts). It has dropped 12%; from EUR 45.4 million in 2002 to EUR 39.8 million as of 31 December 2003.

Board of Directors proposes a gross dividend of EUR 0.36 vs. EUR 0.12 in the previous year

The Board of Directors of Spector Photo Group will propose a gross dividend payout of EUR 0.36 (net dividend EUR 0.27) at the Annual Shareholder’s Meeting. This will provide a return of 2.9% per share (based on the share price as of 31 December 2003). It is the intention of the Board to reward shareholders for the trust that they have put in the company. For the 6,761,253 shares, this amounts to a total of approximately EUR 2.4 million and implies that EUR 5.7 million will also be transferred to the reserves, further strengthening the balance sheet of the Company.


Compensation of the Committee of Statutory Auditors

The Committee of Statutory Auditors are granted an an-nual remuneration of EUR 31,575.00 – in accordance with the decision of the Ordinary General Shareholder Meeting of 12 May 2002. In addition, a total remuneration of EUR 39,666.00 has been granted for activities related to the audit in the associated companies that form a group with Spector.In the 2003 accounting year, the statutory auditors have been granted an additional remuneration of EUR 80,690.18 for activities that went beyond their regular mandate. These were related to their guidance of the internal working group for the implementation of IAS/IFRS, the scheduled merger of Photo Hall subsidiaries, the liquidation of Spec-tor Belgium NV, and the sale and transfer of the activities of Spector Belgium and Photomedia to Filmobel.Beyond these remunerations, no payments or advantages in kind have been made – neither by Spector Photo Group N.V. nor by any of its associated companies.No payments have been made to any persons with whom the statutory auditors would have concluded a coopera-tive agreement, with the exception of the companies that perform local audits at the foreign companies of the group.The latter are included in the amounts mentioned above.

Perspective on 2004

In the area of analogue photofinishing, industry analysts expect a continued drop of on average 15% on the volume of film to be processed in Europe. This decrease is expected to continue in 2005 and 2006, after which the situation will stabilize. This evolution will undoubtedly generate a consolidation movement in the market. In this context, Spector intends to play an active role within the European

mail order segment. Smaller, national players in particular may come under high pressure in the short run. Spector is investigating to what extent it will be able to access the required resources to carry out this strategy. Such a strategy aims to keep volumes at least at their present level. This would then lead to an improved utilization of lab capacity and also improve efficiency. The company intends to implement this strategy in 2004, so that it can already bear fruit in 2005.At the same time, the Group intends to accelerate the sales growth of digital photofinishing. It became clear in 2003 that a certain run-in time is required before pho-tofinishing Web sites (Web-to-post) will gain momentum. To this end, the mail order organizations will continue to initiate tests in 2004 of various other ways for the con-sumer to forward digital images to Spector for additional processing. In 2003, digital kiosks installed in retail outlets have clearly demonstrated that this is a successful concept. This initial success has prompted Spector to install 150 ki-osks at its various photo outlets. These will be in operation by Easter 2004. An additional 140 kiosk will be installed across Belgium, Luxemburg, France, and Hungary in Photo Hall retail chain operations. In addition, a high-capacity digital photofinishing line is currently being installed at the Wetteren, Belgium lab. This new production line will offer various new possibilities. The machine can digitize and process negative-film images as well as print digital images in standard formats. The high-capacity digital line can print digital images, transfer them onto VCD, or forward them automatically to an online photo album.Spector strategy has taken into account that the continued growth of digital photofinishing may not be sufficient in the coming two years to compensate for the sales decline of analogue photofinishing. Therefore, Spector intends to gradually widen the product assortment of its mail order organizations (including their Web-to-post activities)

towards photo-related products and multimedia services. The evolution of mobile phone/cameras will be closely monitored as well.In the multimedia products sector, Spector expects a moderate sales increase, thanks to the continued success of the digital camera, flat-screen TVs, DVD recorders, and the new-generation of mobile phones. The expected price decrease will bring these devices within reach of a larger audience, but may also produce lower margins.In view of the various evolutions that are taking place in the market and other external factors that have yet to be resolved, Spector Photo Group may not be able to start the implementation of the strategic measures scheduled for 2004. The company is not in a position to provide figure-based forecasts for the 2004 operating result. Spector Photo Group hopes to have a better view on this matter when publishing its mid-year 2004 figures.

Status of the business since the closing of the accounting year

The first months of the 2004 accounting year indicate the continuation of the market trends that have already sur-faced in 2003. The volume of film that is forwarded to our mail order organizations for processing is decreasing, as indicated in the perspectives. In the Retail division, the sales figures are increasing slightly versus last year. Selling prices are stable, both in the mail order and the retail markets.With respect to the ‘Other activities’, the export organiza-tion Fotronic continues to be affected by the dollar rate, thus preventing the sales figures from returning to former levels.Costs for the main raw materials and supplies have not changed materially. Stocks and supplies have not demon-strated abnormal changes.


Consolidated cash flow statementCash flow from operating activities 2003 2002 2001 Net result, share of the group 8,124 245 -18,583 Net result, share of minority interests 902 947 1,734 Depreciations (including on consolidation differences) 29,300 28,699 46,030Change in provisions and write-offs -1,261 -1,527 2,258Share in the result of the companies accounted for using the equity method 0 4,200 0Profit or loss on the sale of fixed assets 0 0 0Change in deferred taxation -272 -59 -969

Gross margin self-financing ability 36,793 32,505 30,469 Decrease in stocks 1,082 3,781 46,071 Decrease in trade debtors 258 5,193 41,470 Decrease in deferred charges and accrued income 265 658 1,054 Decrease in other debtors 2,623 3,368 14,346 Decrease in trade debts -681 -8,114 -54,318 Decrease in other creditors -209 -3,466 -13,425 Increase (+) /decrease (-) in accrued charges and deferred income 358 -570 -1,252Change in working capital 3,697 850 33,946

Net margin self-financing ability 40,490 33,356 64,414Investing activities Sale of intangible and tangible fixed assets 1,647 1,832 6,176 Purchase of tangible fixed assets -8,298 -7,804 -10,457 Purchase of intangible fixed assets -19,153 -18,823 -18,610 Purchase (-) / sale (+) of financial fixed assets -136 256 -707 Surplus value financial fixed assets 0 0 0 Change in consolidation goodwill -236 0 23,850 Other changes -810 348 53,444 Translation differences 1,057 -725 517

Change in cash and cash equivalents resulting from investing activities -25,929 -24,915 54,212

Financing activities Capital increase 0 4,663 7,437 Capital subsidies -3 2 -3 Dividends paid out to the shareholders of the parent company -811 0 0 Repayment (-) / usage (+) of debts on long- and mid-term -17,246 -11,241 10,251 Increase (+) / decrease (-) of the current portion of amounts payable after one year 3,252 10,793 -22,232 Decrease (+) / increase (-) of short-term financial debts -5,027 5,344 -68,180 Increase (+) / decrease (-) of leasing debts payable after one year 184 -1,229 -15,331 Decrease (-) / increase (+) of other loans payable after one year -68 -446 185 Change in other 0 -14,173 13,593

Change in cash and cash equivalents resulting from financing activities -19,719 -6,287 -74,281 Translation adjustments -2,101 313 708 Companies entering the consolidation circle 0 0 0 Change reserves after deconsolidation 0 31 -36,810 Change minority interests -907 -10,515 -133 Change reserves plus change reserves by merger Photo Hall - Spector Photo Group 0 3,724 0Change in cash and cash equivalents -8,166 -4,294 8,109Cash and cash equivalents at the beginning of the financial year 19,444 23,738 15,629Cash and cash equivalents at the end of the financial year 11,278 19,444 23,738

Note: A decrease in the asset items and an increase in the liabilities items have a positive effect on the cash flow.

An increase in the asset items and a decrease in the liabilities items have a negative effect on the cash flow.


A BRIEF COMMENTARY TO THE CONSOLIDATED CASH FLOW STATEMENT

These comments refer mainly to the changes between 2003 and 2002. Both accounting years have had a compa-rable consolidation circle.The differences between 2002 and 2001 are due mainly to the change in the consolidation circle following the sale of the German, French, and Austrian wholesale photofinishing activities at the end of 2001.

Operating cash flow

The calculation of the operating cash flow is based on the consolidated net result before dividend payout. This amount thus takes into account all non-cash elements. In 2003, the non-cash costs (depreciations, changes in provi-sions, and amortizations) have largely kept at the same level as 2002. Hence the increase of the self-financing ability is mainly related to the increasing share of the group in the net result.

Self-financing cash flow

The change in the operating capital refers to the evolution of the current assets, except cash in the bank and in hand.During 2003, strong efforts have been made to optimize the working capital. Stocks have been strictly controlled throughout 2003.The creditor management has also been strengthened, resulting in a decrease of the trade receivables. The combi-nation of these actions has led to a positive inflow of cash and cash equivalents for a total amount of EUR 3.7 million.

Hence, the net margin self-financing ability (gross margin self-financing ability increased with the positive inflow of cash and cash equivalents) increased from EUR 33.4 million in 2002 to EUR 40.5 million in 2003.

Investing activities

The investments in intangible and tangible fixed assets are in line with the previous year, as are the disinvestments related to these assets. Investments in tangible fixed assets refer mainly to investments in installations, machinery, and equipment for the central photofinishing labs (EUR 3.1 million), investments in minilabs (EUR 1.1 million), and in shop interiors for the Photo Hall group (EUR 3.0 million). Other investments in tangible fixed assets amount to EUR 1.1 million.Investments in intangible fixed assets are mainly related to efforts to recruit mail order customers.The change in consolidation differences refers to the acqui-sition of the French company Omninet, that operates the online photofinishing Web site Wistiti.fr.Viewed from a global perspective, the outflow of cash as a consequence of investments is about EUR 1 million above the 2002 level.(Note: As already mentioned, major divestments took place in 2001,

thus explaining the positive change in cash and cash equivalents at

this level for 2001).

Financing activities

The net financial debt per 31 December 2003 amounts EUR 81,074 (‘000).The main reason for the increase outflow of cash is the reimbursement of financial debts on the long-, mid-, and short-term.Further down in the table comes the outflow of cash to minority interests such as those to FLT, the North-Italian lab in which the groups holds a 51% participation, and to NIB Capital which holds participation certificates in Spec-tor Coordination Centre.In 2002, the change of cash to minority interests was significantly higher. This stems mainly from the full integra-tion of Photo Hall into the group.

Change in cash and cash equivalents

The result of the above described cash flows in 2003 is an outflow of EUR 8.1 million, versus an outflow of EUR 4.3 million in 2002. The increased cash outflow can be almost entirely attributed to the significant reimbursement of financial debts that has been achieved in 2003.As of 31 December 2003, the cash and cash equivalents amount to EUR 11.3 million versus EUR 19.4 million at the end of 2002.In this respect, it should be noted that the biggest part of the escrow (EUR 5.5 million) related to the agreements that have been concluded in 2001 with Kodak Europe, has been released at the end of 2003. This amount was booked under Investments, which involved an artificial increase of the cash and cash equivalents in 2002. In 2003, other investments have also been somewhat reduced.


Photo Hall : product mix

PC34%

Photo16%

GSM18%

TV, DVD, ...32%

Retail

The total turnover of the retail activities of the Spector group has increased by 5.7%. This is primarily due to the improv-ing sales figures for new multimedia products. The operating result has dropped slightly (-4%), which is mainly related to the integration costs for Filmobel/Positif. The operating cash flow has improved by 6.7%, which refers to various factors including the depreciations on investments in shop interiors (mainly at Photo Hall) and an increase in the value reductions on stocks and trade debtors (mainly at Filmobel and Spector).The improvement in the net cash flow is notable, partially thanks to the strong reduction of interest charges.

Spector Photo Group uses the term Retail to cover the sale of photofinishing services, photo-related products, and consumer electronics at the point-of-sale. The Group’s mail order activities operate parallel to its retail operations, giving Spector direct access to consumers. The Spector Group is active in Retail with three concepts.

in EUR million Sales EBIT EBITDA Net cash flow

2003 2002 2003 2002 2003 2002 2003 2002

Retail 241.2 228.3 7.3 7.6 12.8 12.0 9.3 7.6

The Belgian daily “De Standaard”, selected the digital still camera

as the 2003 Product of the Year. According to GfK, between

400,000 and 500,000 digital photo cameras have been sold in

2003, at an average price of EUR 451. This led GfK to believe that

15% of Belgian households now own a digital still camera. For

Europe as a whole, this penetration rate would equate to between

20% and 25%. Market analysts forecast continued growth of the

digital still camera market until 2005-2006; at which point, the

market is expected to have reached its saturation point.

Research by the “Observateur Cetelem” suggests that the Belgian

consumer spends on average EUR 333 per annum for purchasing

high technology products (e.g., laptop computers, electronic agendas,

and digital cameras).

The Photo Marketing Association (PMA)

estimates that approximately 12% of the

mobile phones in the US are already

equipped with an integrated digital camera.

PMA forecasts that by 2006, the mobile

phone/camera segment will be four times

the size of the regular digital still camera

segment.


Photo Hall MultimediaThe Photo Hall multimedia retail chain holds a strategic position within the Spector Group. Photo Hall is present at a level where new technological developments or changing consumer behaviour first come to light. In this respect, the Photo Hall assortment perfectly mirrors the trend to integrate various user functionalities – including picture-taking – into a single device.

A unique concept with a powerful marketing mix• The product mix

- Four product categories: Photo (cameras, acces-sories, and photofinishing), Telecom (mobile phones and accessories), Hi-fi (audio, hi-fi, video, DVD, and TV), and Multimedia (PC, auxiliaries, and games)

- A-brands- Selection of products based on their price/perform-

ance ratio- The latest innovations with appeal to the wider

public- In the near future, Photo Hall will match its product

range even more closely to emerging trends as well as develop total solutions

• Marketing

- Brand awareness- Strong marketing communication (a powerful mix

of mass marketing and direct marketing)- Interesting possibilities for the consumers to

finance their purchases- Advice to the consumer by a competent and

dynamic sales team that is regularly trained

• The shop concept- Mid-sized outlets in shopping malls and city centres,

with a reach of 30,000 to 40,000 inhabitants- The retail outlets should assure a good geographic

coverage and reach the markets in which Photo Hall wants a presence

- Mainly self-operated shops, complemented by franchised outlets

Photo Hall is present in Belgium, the Grand Duchy of Luxembourg, France (the Alsace-Lorraine region), and Hun-gary (40 outlets with the Photo Hall concept, and about 300 smaller franchised outlets with a specific concept). In total, the retail network had four more shops in 2003 than in 2002 (+1%). Characteristic for the Photo Hall concept is the fact that new shops require on average a 24 month run-in period prior to generating the expected sales level. The sales increase of Photo Hall therefore comes almost entirely from the existing shops.

The market today and tomorrow

According to GfK, the European market (10 countries) for the product categories photo/telecom/mulitmedia/hi-fi has experienced a 12% growth in volume and a 1.5% sales growth in 2003. GfK values this market at about EUR 122 billion. For Belgium, this figure is estimated between EUR 850 million and EUR 1,000 million; for Hungary between EUR 450 and EUR 500 million; and for Luxembourg between EUR 50 million and EUR 60 million. Volume and sales growth was mainly driven by the categories multimedia (notebooks), telecom (mobile phones with an integrated camera), and photo (digital still cameras). The category hi-fi experienced a light decrease in turnover.

Similar trends are expected for 2004. For 2004, flat screens (LCD and plasma) look promising as some market analysts predict the replacement of all traditional CRT TV screens by flat-screens over time. Analysts also predict a battle in 2004

between the various DVD standards. Once this battle has been decided, the DVD market may develop further.The 15% volume growth that has been forecast for the consumer electronics market is linked however to pressure on retail prices, which would limit sales growth about 1.5%. A growing pressure on trading margins as % of the selling price is another potential factor that has to be taken into account. More than ever, correct diversification between the various product categories is required in order to sustain overall margins in absolute value. The Photo Hall concept is tailor-made for this approach.

These forecasts are valid for the Belgian market, as well as the market in Luxembourg, France, and Hungary. The Hungarian market, it should be noted, is matching Western Europe evolutions more closely. The accession of Hungary to the European Union in May 2004 will further strengthen this evolution.

Photo Hall in the market

With its characteristic concept, Photo Hall is well dif-ferentiated in the geographic markets where it is present. Few other market players have a comparable product assortment. This makes it difficult to compare the Photo

Country Self-operated

shops

Fran-chised shops

Total number

of outlets

Difference 2002

Belgium 84 6 90 -1

Hungary 54 215 269 +3

Luxembourg 14 0 14 +0

France 6 0 6 +2

Total 158 221 379 +4


Photo Hall MultimediaHall market position versus other players. Most integrated electronics chains, for example, also include “white goods” (household appliances) in their product assortments. On the other hand, most independent retailers have specialized in only one or two product categories, but almost never in four as Photo Hall has. This situation is precisely the strength of the Photo Hall concept.

In Belgium, 56% of the market for brown goods (hi-fi) is channelled via independent distributors, 20% through large retail distributors (Carrefour, etc.), and 24% via spe-cialized chains (Photo Hall, Fnac, MediaMarkt, Vandenborre, etc.). Photo Hall holds the leading position in the special-ized chains segment. Nevertheless, Photo Hall tailors its competitive strategy mainly towards the large distribution chains and the independent retailers.A similar situation exists for the other product categories (multimedia, telecom, and photo) in the Belgian market. The distribution shares for independents, large distributors, and specialized chains are similar. Again, Photo Hall plays a significant role in these areas, and has outperformed the market for specific product groups.

In Hungary, Photo Hall is in the process of implementing the plan initiated in November 2002. At that time, the Photo Hall concept – as it is developed in Belgium – was introduced in Hungary. Today, 30 outlets in Hungary have already been fully transformed according to the Photo Hall concept. The objective is to include an additional 10 existing outlets in this transition. Upon completion of this plan, Photo Hall will hold a Top 3 position in the Hungarian multimedia market, which is characterized by

the presence of a growing number of European players like MediaMaret and Dixons.

Note: An in-depth analysis revealed that it would not be produc-

tive to introduce the Photo Hall concept in the more than 250

remaining outlets in the Group’s Hungarian retail network. These

smaller outlets are operated in a pragmatic way, following a specific

concept, while still featuring the Photo Hall brand name.

In Luxemburg, Photo Hall is the absolute Number One in the market. This market follows more or less the same trends that occur in the Belgian market.

In France, Photo Hall operates six outlets in the Alsace-Lor-raine region. These outlets have been opened as part of a strategy to test the opportunities for organic growth in France. An analysis is scheduled for later this year to decide whether the penetration of shops in this region should be further increased.

2003 performance of Photo Hall

The breakthrough of digital photography yielded excellent sales of digital cameras for Photo Hall. Photo Hall aims to turn each sale of a digital camera into an opportu-nity for establishing a long-lasting relationship with the consumer/amateur photographer. In this context, Photo Hall will equip 80% of its outlets in Belgium, Luxemburg, France, and Hungary with a photo kiosk by the end of 2004. In 2003, photofinishing represented 9.1% of the total turnover of Photo Hall in the four countries where it is operating.

Other digital technology based products also witnessed increased sales in Belgium, Luxemburg, and France. In parallel with the photo side, multimedia items (including notebooks) and telecom (including mobile phones with a built-in digital camera) also contributed to the growth in volume and sales. The Hungarian retail chain’s conversion to the Photo Hall concept enabled the company to gener-ate a sales figure that was only 2% below 2002 – despite the pressure on photofinishing and telecom products on the Hungarian market. This implies that the sale of other multimedia products – inherent to the Photo Hall concept – has grown strongly. To summarize, Photo Hall was the motor that drove last year’s sales growth in the Retail segment.

Just like its sales, the Photo Hall results also evolved in a positive way in 2003. While the total turnover for the four countries grew 9% in 2003, the operating result increased by 18%.

Perspectives for Photo Hall Multimedia

Spector expects a slight increase in turnover in the multimedia sector thanks to the continued success of the digital camera, the new generation mobile phones, flat screen TVs, and the DVD recorder. The expected price decreases of these devices will bring them within the reach of a wider audience, but this may also coincide with lower margins. Still, the absolute margin is expected to remain stable, thanks to a sufficiently high increase in volume.


SpectorSpector communicates directly with the consumer but transactions take place via a partnership with independent photographers.

The Spector photo specialists

The Spector concept covers a network of approximately 500 independent photo specialist outlets in Belgium and 200 in the Netherlands.

A marketing concept based on a direct relationship with the consumer has been established in close cooperation with these independent partners. The Spector Card plays a key role in this concept as it provides a crucial tool for database marketing. Spector Card holders receive a free roll of film whenever they have a film developed and prints made.

Photofinishing remains the main activity in the Spector concept. The photofinishing services of Spector reach from analogue to digital photography. Photo services are centralized in the Wetteren lab, but there is also a network of analogue and digital minilabs that are being sold and/or managed by Spector. Minilabs are small-sized photofinish-ing laboratories that are installed in retail outlets. They enable one-hour-service for the consumer.

Apart from photofinishing services, most Spector partners also sell digital and analogue cameras. The majority of the Spector partners also markets photo-related goods such as lenses, filters, accessories, frames, albums, etc. In recent years, this assortment has been widened to include telecom products. Many Spector partners rely on Filmobel and Positif photoGroup for their supply of these products. Filmobel N.V. acquired the concept and the business of Positif photoGroup in November 2003. Positif is a Belgian purchasing group for photo-related hardware and accesso-ries. The group has about 140 members – all independent

photographers, including a number of Spector partners. Positif also provides a consumer marketing program to its members.

Note: Beside the activities under the Spector and the Positif con-

cept, Filmobel N.V. also runs a number of wholesale activities on

behalf of neutral customers and large distributors.

In 2003, the total sales of Spector, Filmobel, and Positif represented 14% of the consolidated group turnover.

The market in which Spector is operating, today and tomorrow

Spector is situated in the same market as Photo Hall for hardware products (see page 18). However the product as-sortments of Spector and Positif are not as wide as Photo Hall’s and are concentrated in the photo and telecom categories. Both categories have performed relatively well in 2003, mainly because of the success of the digital still camera and the newest models of mobile phones. For 2004, a volume growth of 15% is forecast for these mar-kets. Because of the accompanying pressure on retail prices, the sales growth could be limited to 1.5%. Trading margins, together with the pressure on pricing, are likely to come under pressure.

For photofinishing services, the main question in 2003 was what the impact would be of digital photography becom-ing accessible to the mainstream consumers. It is generally accepted that the market for developing and printing analogue photo exposures has witnessed a volume drop of more than 10%. Even though no precise market data are available, it is fair to assume that, in 2003, the volume drop of analogue prints has not yet been compensated for by the growing number of orders for digital prints. The as-sumption is that the majority of new digital users do not

have their digital exposures printed. Or, if they do print them, that they are using PC and home printers. Expecta-tions for 2004 are that because of the wider availability of digital kiosks (order stations like Pixbox), the number of digital prints that are ordered through the photo outlets may double.

A second factor, beside the evolution of digital photo-graphy, is the ongoing shift from centralized photofinish-ing labs to decentralized minilabs. A growing number of photographers have decided to install a digital minilab in their outlet in order to offer an instant print solution to their digital customers. In the Dutch market segment of specialized photo outlets, the photofinishing volume processed on minilabs already represents over 50% of the total. In the corresponding segment in Belgium, this share has grown in 2003 from 20% to about 30%.

Spector in the market

For photo-related hardware and accessories, Spector and Positif are operating through the channel of independent retailers, who represent some 40% of the Belgian market. The Spector/Positif combination is the largest in terms of membership numbers in the Belgian specialist trade market. In terms of turnover, Spector/Positif can undoubtedly be considered top-players within this segment. Action Shop is the only competitor with comparable sales in this category.

In the field of photofinishing services, Spector is without doubt in the Top 3 of the specialist’s channel, and holds an un-rivalled leadership position in specific regions of Belgium. Other major central labs that service Belgian independent photographers are Littocolor (Kodak), Elka (independent) and Presto Print (CeWe).This specific market segment is characterized by a group of loyal and active customers, which remains fairly stable. This


Spectorsegment represents about 40% of the total Belgian market for photofinishing services. The mail order segment in Bel-gium is a mere 5% of the total market. Finally, there is the segment of the non-specialist channels (large distribution chains, press shops, gas stations, etc.). These are estimated to represent 55% of the total market in Belgium. Spector has intentionally declined to be active in the latter segment in Belgium, and since 2001, has also withdrawn itself for strate-gic reasons from this segment in other countries.

In 2004, Spector will install some

200 additional digital kiosks (Pixbox)

at Spector partners. As a result, the

availability of this formula will be

considerably improved.

Retail performance of Spector in 2003

The digital kiosk has been an instant success in retail outlets wherever it has been installed. In 2003, digital photo prints accounted for 4.5% of all photo prints processed through Spector photo outlets. These figures are remarkable for the fact that they were achieved with an installed base of only 40 retail kiosks. Accordingly, the company plans to have about 150 kiosks installed in Spector outlets by Easter 2004. About 200 of these kiosks should be operational at Spector photo specialists by the second half of 2004.

In addition, Spector anticipated the switch from cen-

tral to local photofinishing activities very well in 2003. Simultaneously, Spector has worked hard to improve its cost structure. The less profitable photofinishing products removed from the assortment in 2002 resulted in an improved margin in 2003.The 2003 marketing costs have been critically reviewed.This approach has resulted in improved margins in 2003.

For Positif-Filmobel, 2003 was a year of transition. Activities that were still located in Aartselaar (Antwerp) were moved to the Filmobel site in Vorst (Brussels) at the beginning of 2003. This involved a number of adaptations in the short term, but will lead to improved cost efficiency in the longer run. Since Filmobel only acquired the business of Positif photoGroup in November 2003, last year the organization was mainly concerned with organizational changes, and the inherent advantages could not yet manifest themselves.

Total turnover of Spector-Filmobel-Positif decreased by only slightly more than 5% in 2003, while market analysts assume that the Belgian photofinishing market in general declined over 10% in 2003. The operating result of Spec-tor has improved versus 2002. Considering the impact of the integration of Filmobel and Positif, the combined operating result of Spector-Filmobel-Positif has been af-fected by one-off costs.

Perspectives for Spector

Spector follows a twofold plan in Belgium and The Netherlands:1. Anticipate the trend towards local printing of photos

(on-site printing)2. Accelerate the turnover from digital photofinishing.

Spector anticipates growing success for minilabs. With this kind of equipment, films can be developed in the

store, and photo prints made available for the consumer within one hour. Spector has developed an attractive ‘click’ concept: the owner of the photo outlet where the minilab is installed, pays per ‘click’ (per photo print) for a total service. Digital minilabs will be linked to the Pixbox kiosk. The consumer can use it to prepare their order. As already indicated, Spector intends to have no less than 200 Pixbox kiosks in operation by the end of 2004. Some of the Pixbox order stations have already been pur-chased by Spector shop owners Their experience in 2003 demonstrated that, even with moderate utilization, the Pixbox pays for itself, on average, within only six months. Therefore, Spector has taken the decision to finance a part of the new Pixbox kiosk in order to accelerate the pace of installation. The financing cost is charged to the Spector shop owner through the selling price of photofinishing.

In addition, Spector will launch a new version of the widely known Spector Card in the spring of 2004. One of the principal advantages for the Spector Card owner is that they receive free film back every time they bring in film for developing and printing at a Spector photo specialist. The ‘free film’ concept has proven to be a great success over the years. The new Spector Card retains this feature but is now complemented with an equivalent advantage for the card owner who uses a digital camera. With the Spec-tor Card, the consumer will not have to pay any start-up costs for any order of 30 digital prints or more. This posi-tions Spector extremely well on the market, based on the total price for an average order. Moreover, Spector custom-ers can be assured that they will always receive top quality digital prints – processed on state-of-the-art equipment (Cyra and Frontier) and printed onto silver-halide paper.

In 2004, the integration of Positif-Filmobel should be entirely absorbed, thus leading to an improvement of the results, here too.


Mail Order

Relationship marketing

Mail order activity is relationship marketing. This requires years of expertise, combined with an effective database system. Database marketing is not about fulfilling one-off orders, but rather the development of long-lasting custom-er relationships.

Each time a new order is received, the profile of each customer becomes sharper. Over time, mail order organiza-tions gain a clearer insight into the ordering behaviour of each customer. This enables the organization to propose the most desirable offer at the most appropriate moment.

The value of these long-lasting customer relationships can be effectively calculated. Based on our expertise, we can forecast the total sales figure per client over a specified period with a reasonable degree of accuracy. This is called lifetime value. The level of the lifetime value for an existing mail order customer is an indicator of the amount that can be invested to generate new customers.

The market today and tomorrow

Initially, all mail order organizations limited their activities to analogue photofinishing. With the arrival of digital pho-tography, most players, including Spector, have extended their activities to the Internet (Web-to-post).

Mail order represents a relatively small segment of the total market in Western Europe in analogue photofinish-ing. It is a mature market segment, awaiting an imminent consolidation wave. The annual sales value of the Western European market is estimated to represent between EUR 250 million and EUR 300 million in turnover. For 2004, industry observers forecast a continued decline of on average 15% in the amount of film to be processed. The sales decline is expected to be slightly less sharp. On one hand, the price level in this segment seems to be better protected than in the segment of the large distributors. On the other, additional turnover per film can be gener-ated through selling related products such as digitizing analogue photos onto VCD.

Spector in the market

Because of the prerequisite expertise in database market-ing, there are only a small number of market players of any significance. Apart from Spector Photo Group, there is only one competitor, Fotolabo Club, with cross-border activities in Western Europe. Others are merely national organizations.Spector has positioned itself in this market with a ‘high

Presence in the mail order segment

Mail order share of the market

Spector share of in the seg-ment

Market posi-tion in the segment

Brand name Spector lab

Belgium 6% 50% 1 Maxicolor Wetteren (B)

The Netherlands 1% 99% 1 Maxicolor Wetteren (B)

France 4% 70% 1 ExtraFilm Maxicolor

Wetteren (B) Munster (F)

Denmark 4% 63% 1 ExtraFilm Tanumshede (Swe)

Finland 28% 8% 2 ExtraFilm Tanumshede (Swe)

Norway 38% 22% 1 ExtraFilm Tanumshede (Swe)

Sweden 33% 36% 1 ExtraFilm Tanumshede (Swe)

Switzerland 40% 11% 3 ExtraFilm Munster (F)

Source: Estimates by Spector Photo Group

Although the Spector Group is also trading in photo-related products like picture frames, albums, and cameras through its mail order channel, the vast majority of its mail order activities deal with photofinishing, both analogue and digital. The process starts when the consumer puts their analogue film or digital support (memory stick, CD, etc.) in a dedicated pouch. The postal services bring this pouch to Spector where the images are printed onto photographic paper in the desired format. When finished, the order is mailed back to the consumer. In a wider sense, mail order also refers to the Web-to-post activities. Here the consumer uploads their digital pictures to one of the Group’s Web sites, issues order instructions, and receives their order back by mail. ExtraFilm is the leading brand for all mail order activities in the Group.

Turnover distribution of Mail Order photofinishing

Belgium-The Nether-

lands1

Scandinavia

SwitzerlandFrance


frill’ concept. This concept implies that the consumer receives much more than merely the prints that they have ordered: a free film, a photo album, a gift, etc. The consumer is prepared to pay a premium price for the total package, including complementary goods and services. In this way, Spector differentiates itself from its competitors in the mail order photofinishing market. They mainly work with a no-frills concept, whereby each additional product or service is noted separately and billed. Spector’s concept has enabled the Group to establish a leadership position in six out of the eight countries where it operates in the mail order segment. In the remaining two countries, Spector Photo Group has expanded its market share in the past year. About half of the mail order turnover of the Spector Group is achieved in France, Belgium, and the Netherlands; a third comes from Scandinavia and roughly a fifth from Switzerland.

Extending the market: from analogue to digital; from photofinishing to multimedia

With the rise of the Internet, the traditional mail order market for photofinishing has been extended by a Web-to-post segment. Although it is presently a relatively small segment, it holds the potential for further growth in parallel with the continued development of Internet usage. The growth potential is attracting many candidates. In ad-dition to the traditional photofinishers who have embarked on this new area, there are also numerous companies that concentrate entirely on the Web-to-post model. Along with Spector (under the ExtraFilm brand), Colormailer, Photo-ways, and Pixum are good examples of currently significant players in Western Europe. Spector also acquired the Web site Wistiti.fr in 2003. This particular concept has made it very popular in France.

Paralleling the evolution of Web-to-post photofinishing is a developing market for Web-to-post delivery of photo-relat-ed products such as cameras and accessories. Nomatica is a major webshop in Western Europe that mainly targets the French market. The IDC market research agency indicates that the number of these webshops in France has grown from 10,700 in 2000 to 20,700 in 2002. The Benchmark Group, another market research agency, estimates the total turnover of these webshops at EUR 685 million in 2000 and EUR 2,350 million in 2002. Most ExtraFilm Web sites offer a Web shop module that will be developed in the fu-ture. This particular market segment, though only recently created, offers great opportunities for future growth.

Today, the combined turnover of the Spector Group mail order organizations is as follows:

• Analogue photofinishing 94%• Digital photofinishing 3%• Photo-related products 3%

In 2003, the Spector mail order segment outperformed the market

Sales from mail order organizations are derived almost exclusively from photofinishing services. During the first two quarters of 2003, Spector’s mail order organizations have been able to increase their volumes for analogue photofinishing by 1.5%. These gains moved inversely to the general market trend. During the third quarter, however,

general market tendencies also became noticeable in the group’s mail order units. On an annual basis, the volume of analogue film processed fell 3.5% below 2002 results. Various sources estimate that the total West-European market for analogue photofinishing dropped 8% to 12% in the same period.

Spector’s mail order units have largely offset the decline in the volume of analogue film processed by selling new prod-ucts. For the second consecutive year, mail order customers have had more analogue films scanned onto VCD than the previous year (+14%). The ‘development+print+VCD’ package has been particularly successful. In addition, digital prints have shown spectacular growth, too: +349% in volume and +264% in sales versus 2002.

Yet, digital products still represent a mere 2.66% of the mail order sales. Apparently, the photofinishing Web sites (Web-to-post) require a certain run-in period before ac-celerating into high gear, as already suggested by Spector when publishing its Third quarter 2003 results. Meanwhile, the mail order units continue testing various possibilities for the consumer to forward digital images to Spector for processing into photo prints. These possibilities include the DigitOrder – a software application that enables the consumer to put digital pictures onto a CD along with the order specifications. This CD can then be mailed in the familiar pouch to Spector. In addition, Spector will also test the mail order kiosk. This is an order station from which the consumer can send digital images to the mail order lab for prints.

in EUR MILLION Turnover EBIT EBITDA Net cash flow

2003 2002 2003 2002 2003 2002 2003 2002

Mail Order 115.4 120.3 12.8 14.4 29.3 31.0 28.5 29.4

Mail Order


Because capacity crucial plays a crucial role in photofinish-ing, the evolution of the operating result stays somewhat below the evolution of the turnover. Operating cash flow and net cash flow have evolved by about the same amount as the operating result, as depreciations of investments in marketing prospects have remained stable.

Prospects for Spector Photo Group mail order organizations

In the area of analogue photofinishing, industry analysts expect a continued drop of on average 15% on the volume of film processed in Europe. This decrease is expected to continue into 2005 and 2006, after which the situation will stabilize. This evolution will undoubtedly generate a consolidation movement in the market. In this context, Spector intends to play an active role within the European mail order segment. Smaller, national players in particular may come under high pressure in the short run. Spector is investigating to what extent it will be able to access the re-quired resources to carry out this strategy. Such a strategy aims to keep volumes at least at their present level. This

would then lead to an improved utilization of lab capacity and also improve efficiency.

At the same time, the Group intends to accelerate the sales growth of digital photofinishing. To this end, the mail order organizations will continue to initiate tests in 2004 of various other ways for the consumer to forward digital images to Spector for additional processing. In addition, an automated line for digital photofinishing is being installed in the Wetteren lab, which offers new possibilities.

Spector strategy has taken into account that the contin-ued growth of digital photofinishing may not be sufficient the coming two years to compensate for the sales decline of analogue photofinishing. Therefore, Spector intends to gradually widen the product assortment of its mail order organizations (including their Web-to-post activities) to-wards photo-related products and multimedia services. The evolution of “camphones” (mobile phone/cameras) may offer new growth opportunities.

Mail Order


Other activities

The market

The transition from analogue to digital photography and the impact of this phenomenon on photofinishing activi-ties is affecting the markets where Sacap, Fotronic, and FLT operate. This is discussed in detail later in this document. Beside this common factor, each of the above-mentioned organizations is confronted with specific factors.

Sacap FranceThe distribution channel for independent photographers is under pressure in France. While some of this pressure is obviously related to the rise of digital photography, the French photo market has also experienced a year of accelerating consolidation. At the same time, the large French distribution chains have increased their pressure on photofinishing prices. Consequently, all suppliers for this channel (Embetec, etc.) have had a tough year. Sacap chose not follow the general downward pricing spiral. This resulted in a 2003 turnover that is almost one third lower than that of 2003. In parallel with this however, Sacap thoroughly revised its product assortment as well as its organizational structure. This should enable Sacap to return to a slightly profitability level in 2004, even with a reduced turnover.

FLTThe Italian photofinishing market is still strongly influ-enced by independent suppliers. While a consolidation wave is bound to emerge over time, industry observers believe that the transition will be smoother here than in France. FLT is gradually widening its customer network and has launched various initiatives in the field of digital photofinishing.

FotronicFotronic is active mainly in African, Eastern European, South American, and certain Asiatic markets. These are also the regions where market analysts still see growth opportunities for analogue photography. On the other hand, the markets that Fotronic is targeting are strongly dependent upon the exchange rate of the US dollar. Fotronic purchases the majority of its goods in euro, but sells mainly on dollar markets. Furthermore, political events and other phenomena such as SARS have an important albeit relatively small impact on Fotronic’s performance.

These factors combine to force Fotronic to follow an op-portunistic strategy.

Other activities – 2003

In 2003, the picture for the other activities of the Spec-tor group was strongly influenced by the wholesale and export organizations Sacap (France) and Fotronic. Sacap has adjusted its organization and its product assortment modifying its position on the French market for trade photographers. In 2004, this organization is expected to post a moderate profit. The export organization Fotronic was hurt by a strong euro, which impacted heavily on its competitiveness. Fotronic has chosen to resist the temptation to lower prices, despite the resulting negative effect on sales. When Spector Photo Group published its half-year 2003 figures, it warned that 2003 sales results for these units may be less than those for 2002.

The decrease in turnover has also been translated into the operating result. The operating cash flow, however, lies above the 2002 level. This is mainly due to the crea-tion of provisions for stocks and trade debtors, both at Sacap France and Fotronic, and for social charges as a consequence of the closure of the minilab department of Sacap France. The net cash flow, too, is better than 2003, partially because of the reduced interest charges.

in EUR million Turnover EBIT EBITDA Net cash flow

2003 2002 2003 2002 2003 2002 2003 2002

Other activities 20.3 32.3 -4.0 -3.3 4.7 4.5 -2.3 -5.4

Within the reporting system of Spector Photo Group, the term “Other activities” refers to the following organizations:• Corporate (support services in headquarters such as ICT)• DBM Color (the photofinishing lab in Wetteren, Belgium, which mainly acts as internal supplier to the Belgian commercial entities and

the French mail order organization ExtraFilm)• Fotolabore Tagliabue (the Group holds a 51% participation in FLT, a supplier of photofinishing services to a network of customers in

Northern Italy)• Sacap France (distribution of a wide array of photo-related products to independent French photographers)• Fotronic (export of photofinishing materials and equipment, mainly to markets outside Western Europe)


“Navigating the Future”

The world of multimedia is being shaped

The media are convergingTechnology is evolving very fast. Previously, a still camera was designed for taking pictures and a telephone for making phone calls. In the future, various functions will be integrated into a single multimedia device. The rise of the mobile phone/camera is but a first illustration of this trend, which will bring a growing number of uses and possibilities.

The “digital consumer” is looking for total solutionsThe consumer wants to benefit effectively from these new possibilities. But, they will demand that using these new possibilities be extremely user-friendly. Tomorrow’s consumer will be looking for total solutions. Today, the consumer is still obliged to look for products and services at various suppliers, and then adjust them to integrate with each other, usually without any technical assistance. The Spector group has everything required to develop a complete solution.

The consumer is using multiple shopping channels, all at the same timeThe average consumer becomes less and less loyal to one specific shopping channel. To an increasing degree, consumers expect to find a solution for each problem, regardless of where they are, at any given moment of the day. In order to meet these expectations, solutions must be made available through a multitude of channels: retail outlets, over the Web, by mail, or any combination of any or all of these. The Spector group is already active in each of these channels.

Spector positions itself as a multimedia com-pany

In view of the trends describe above, Spector Photo Group has imposed upon itself the mission to provide the best solution for the consumer in the field of imaging and multimedia applications. Spector has targeted the leisure time of the consumer and made it its core mission. The group will continue to develop direct and preferred rela-tionships with consumers through multiple channels and partners. Spector will concentrate on the European market.

These evolutions offer various growth opportunities for a diversified group like Spector. Spector intends to achieve this growth starting from its two existing business plat-forms. On the one hand, there are the mail order activities of the group built mainly around photofinishing. On the other, is the group’s retail platform, developed around the Photo Hall concept and focusing on consumer electronics.

Growing from the mail order platform

The analogue photofinishing market will indeed decline, but will never fully disappearIt is generally accepted that worldwide, between 8% and 12% less analogue film was processed in 2003 versus 2002. GfK predicts that between 2003 and 2008, the number of prints from analogue film will decline by 26% and then start to stabilize. So, the analogue market will not disappear entirely over the next decade – and will prob-ably remain at a substantial size for a longer period.

The digital consumer is taking more pictures than ever before…GfK estimates that the average consumer owning a digital still camera takes about 400 pictures on an annual basis versus a mere 150 exposures with a traditional film-based camera.

These findings have led GfK to predict that the number of exposures (analogue and digital combined) will grow from 115 billion in 2000 to 215 billion in 2008. The rising popularity of mobile phone cameras is likely to enhance this trend even further.

Since 2001, the Group’s activities have been further diversified, leading to an increase in the relative weight of retail activities in multimedia products and consumer electronics. Together with the sales of other non-photofinishing activities, they now represent about 63% of the consolidated group turnover. In 2003, 37% of the total group turnover was derived from photofinishing. With its current diversification of activities, Spector is ideally positioned to benefit from the new opportunities that are emerging in the multimedia environment.

Evolution of film sales & analogue photofinishing in Western Europe

Source : Kodak estimation 2003, EPI December 2003

Estimated number of pictures taken by the consumers

Source : Photofinishing News 2003


“Navigating the Future”… and they also want prints from a great many of these digital photosResearch by NPD Techworld shows that 80% of all digital consumers want to make prints from their pictures. GfK believes that the number of prints from digital photos will grow from 3 billion in 2000 to 68 billion in 2008.

But the consumer is still looking for convenient printing solutionsToday, the vast majority of industry observers assume that a major portion of these digital images are printed on a home printer; 90% in the opinion of GfK, 68% according to PMA. Although these percentages differ, depending on the source, they do illustrate that there is a growing consensus about certain future trends. A growing number of consumers will discover cheaper, higher quality, and – most importantly – more convenient alternatives to home printing in the near future.

The market for digital and analogue photo prints will recoverAccording to many market researchers, the trends de-scribed above imply that the current volume decrease will again be offset by 2008.

In the short term, Spector intends to play an active role in consoli-dating the sectorIn the coming two years, the decrease in the analogue photofinishing market will put smaller, national players in particular under high pressure. Spector is investigating to what extent it will be able to access the required resources to carry out this consolidation strategy. Such a strategy aims to keep volumes at least at their present level, with a volume increase once the market starts to recover.

Growth from digital productsThe group envisages an acceleration in the growth of turnover from digital photofinishing. To this end, Spector will develop various solutions, through which the con-sumer can entrust the complexity of use to the company. These solutions include digital kiosks (order stations), user-friendly photofinishing Web sites, and the DigitOrder software that enables the consumer to prepare his order off-line, in the cosy setting of their own the living room. Developments in the field of mobile phone/cameras will be closely monitored as well.

Growth from offering total solutionsToday, the mail order organizations of Spector derive over 90% of their turnover from photo prints on a standard format. However, digital images are perfectly suited to be valorized in many different ways: on photo post cards, photo calendars, on T-shirts, mouse pads, etc. Spector intends to generate additional turnover by following the motto ‘Do more with your pictures’.

The currently existing photo Web sites can play a crucial role in this plan. Spector intends to attract the consumers to these Web sites by offering them the ability to store their digital photos for free – unlimited in volume and unlimited in time. From these sites, consumers can then order the products listed above, as well as cameras, photo frames, albums, etc. The assortment need not remain re-stricted to physical products, but can also be expanded to include services such as photo album management, photo enhancement, and image communication services.

Growth from partnershipsThe free photo storage Web sites will attract more visitors, and generate more traffic. This will make these sites attrac-tive to potential partners. In the recent past, the Spector group has concluded partnership projects with Vodaphone in Sweden (MMS photos), Proximus in Belgium (MMS photos), MSN Belgium (online photofinishing), and Canon Europe (online photofinishing) Spector is also partner in the Interactive Digital TV (IDTV) project in Flanders.

Growing from the Retail platform

Growth from new product innovationsEnormous growth opportunities are predicted for the coming years in each of the four product categories that are included in the Photo Hall assortment. In the photo

2008 estimate of the number of photo prints worldwide

Source : Photofinishing News 2003

In wich way the consumer wishes to print his digital pictures ?Sources : - current behaviour & preferences : Kodak estimates 2003 - EPI December 2003 - estimate 2008 : Centric Consultants Ltd. (UK) - FotoMarkt February 2004

Current behaviour Current preferences Estimation 2008


IAS/IFRS

category, the spurt in sales of digital cameras has already begun in 2003. Today, an estimated 29% of Western European households already own a digital camera. But the penetration rate is expected to reach 75% in the future. In the telecom category, market analysts predict a genuine boom for the sale of mobile phone/cameras and other mobile devices with multi-functional applications. The aver-age consumer replaces this type of devices every two years with a new model. The PC category should benefit from the trend towards mobile computing. A home computer in each household will no longer be the standard. Trend watchers foresee multiple, portable PCs in each household. Finally, in the audiovisual category, two replacement waves can be distinguished. In the first, cathode-ray tube TV sets will be replaced by flat screen TVs. The second will see the DVD recorders replace or be added to the high penetra-

tion of existing video tape recorder/playback units.All of these new products will soon be within reach of the general audience.

Growth from opening new retail outlets in existing marketsPhoto Hall is characterized by a strong concept, a well-functioning organization, and a cost-efficient logistics system. This platform can be made even more profitable by economies of scale. The Belgian market still offers opportu-nities for about 20 new outlets. The Luxemburg market is saturated, but Photo Hall will investigate this year whether the Alsace-Lorraine region in France still offers growth potential. In Hungary, 30 outlets already conform to the Photo Hall concept as it has been developed in Belgium. In the short term, an additional 10 outlets may be switched over to this concept. The remaining shops in the current

Hungarian retail network of the group are not good fits for the Belgian concept because of the small shop areas.

Growth from exploring new geographical marketsThe recent project in Hungary has demonstrated that the Photo Hall concept can be successful in other countries as well as Belgium. Therefore, entrance into new geographical markets is not longer excluded. However, Spector does not intend to follow a Greenfield approach and only open new shops. Instead, the group is investigating opportunities to establish a limited presence in a given market by acquir-ing existing shops, with subsequent growth coming from that platform. In this way, the organizational and logistic systems can keep better pace with market expansion.

In conformance with the guidelines of the CESR (Committee of the European Security Regulators) and the CBFA (“Commissie voor het Bank-, Financie- en Assurantiewezen”, Belgium), Spector hereby provides an overview of its approach for transiting to IAS/IFRS.

Planning for the transition

Being a listed stock company, Spector Photo Group will meet the legal requirement to report according to the International Accounting Standards as of 2005.

If practically feasible, the first report on the quantitative impact of the transition to IAS/IFRS will be published in the 2004 Annual Report.

Since the company publishes its result on a quarterly basis, the first publication according to IAS/IFRS will refer to the results of the first quarter 2005.

In the publication of first quarter 2005 results, compara-ble figures will be included for:

• First quarter 2005 : IFRS• First quarter 2004 : IFRS• First quarter 2004 : Belgian GAAP• First quarter 2003 : Belgian GAAP

The same comparison will be used for other publications of interim results in 2005. A comparison on the same basis will also be made in the 2005 Annual Report.

Progress

Spector Photo Group first established an internal work group to prepare the switch-over from Belgian GAAP to IAS/IFRS in 2002. Financial departments of the various units in the group have followed a tailor-made training

course over the course of 2003. The computer systems currently in place are already equipped to process the data and figures for IAS reporting. These preparatory activities enable Spector Photo Group to confirm that the company is technically ready to conduct the switch-over according to the time scheme summarized in this document.

Major impact

It is not within the scope of this document to list and explain all modifications that will occur due to the transi-tion from Belgian GAAP to IAS/IFRS. Taking into account interpretations of certain issues that currently remain unresolved, the Board of Directors has not yet received specific formal advice from the Committee of Statutory Auditors. Consequently, the Board of Directors deems it premature to provide an overview of the possible impact of the IAS/IFRS implementation at this time.

“Navigating the Future”

33Consolidated financial statements 2003Spector Photo Group

COMMENTS

ASSETS (in EUR 000)

1. Formation expensesThe changes in formation expanses can be explained by the depreciations pro rata of 20%.

2. Intangible fixed assetsThe intangible fixed assets consist mainly of investments in expansion marketing by the mail order companies. These expansion activities are exclusively aimed at carefully selected target groups, and represent the acquisition value of new customers.Since this newly attracted clientele represents the future income of the mail order companies, the investments in expansion marketing, as opposed to maintenance marketing, will be booked as intangible fixed assets and written off pro rata over four years. A residual value of 15% will be retained as assets in view of the unlimited ‘lifetime value’ of the clientele acquired. From the perspective of the introduction of new accounting standards (IAS, IFRS), an evaluation of this system has been initiated in the course of 2003. The Committee of the Statutory Auditors has not provided its conclusions in this regard to the Board of Directors at the time this text was edited.

In 2003, the investments in expansion marketing amount EUR 17,536 (000). These investments were at a comparable level in 2002 and 2001. The net book value of the expansion marketing amounted to EUR 47,822 (000) in 2003, EUR 44,827 (000) in

2002, and EUR 40,068 (000) in 2001. The residual value represents approximately 55% of these amounts.

The other intangible fixed assets that were acquired by the group in 2003 refer primarily to the acquisition of the business of Positif photoGroup, a Belgian co-player in the sector, and the goodwill for shops inherent to the retail activities. Other intangible fixed assets that have been acquired in 2003 are: costs for in-house developing of a new Web platform for the photofinishing Web sites of the group, new concepts and products, and a new cash register system.

The investment in the internal development of the Pixbox is also included in 2002. The Pixbox is a digital photo kiosk that enables consumers to order photo prints from their digitally captured images.

Central investments in the field of Software, Data Warehouse, OMCS, and SAP were entirely written off at the end of 2001, as a result of the activities that were divested to Kodak at the end of 2001.

Net book value 31 December 2001 49,375 Acquisitions 18,790 Other 178 Depreciations (15,638)Net book value 31 December 2002 52,705 Acquisitions 19,153 Other (720) Depreciations (16,545)Net book value 31 December 2003 54,593

3. Consolidation differences Consolidation goodwill is the difference between the acquisition value of the participation concerned and the proportional share in shareholder’s equity of the consolidated company. This difference was attributed to Asset & Liability components, of which the value was higher or lower than the book value.The changes in the consolidation difference between 2001, 2002, and 2003 can be mainly attributed to the annual depreciations of the consolidation goodwill.For 2003, the entrance of Omninet into the consolidation circle deserves to be mentioned. This enterprise exploits the French photo album Web site www.wistiti.fr, which was acquired in November 2003.

Consolidated financial statements 2003 Assets 2003 2002 2001

1. Formation expenses 38 53 51

2. Intangible fixed assets 54,593 52,705 49,375

3. Consolidation differences 18,712 20,692 22,905

4. Tangible fixed assets 47,035 50,436 55,083

5. Financial fixed assets 2,328 2,139 6,594

6. Amounts receivable after one year 7,076 7,826 2,430

7. Stocks 43,139 44,550 48,315

8. Amounts receivable within one year 48,208 51,636 65,946

9. Investments 2,528 11,691 8,618

10. Cash 8,750 7,752 15,120

11. Accruals and deferrals 3,660 3,925 4,583

Net book value 31 dec. 2003 31 dec. 2002 31 dec. 2001

ExtraFilm Switzerland 1,500 1,633 1,768

ExtraFilm France 1,305 1,524 1,745

ExtraFilm Scandinavia 5,254 6,212 7,171

Photo Hall (Belgium, Luxembourg) 6,932 7,444 7,957

Others 3,721 3,879 4,264

Total 18,712 20,692 22,905

34 Consolidated financial statements 2003 Spector Photo Group

The goodwill from this acquisition amounts to EUR 236 (000).

4. Tangible fixed assetsIn both 2001 and 2002, as in 2003, the net book value of the tangible fixed assets has decreased because the depreciations were only partially compensated by new investments.The investments in this three year period are mainly related to two major categories : (1) expansion and replacement investments in the photofinishing labs of the group, and (2) opening and refurbishment of Retail division shops.

(1) Investments in the labs of the groupThese investments refer to the labs in Wetteren (Belgium), Tanumshede (Sweden), Budapest (Hungary) and Munster (France). Spector is owner of the first three sites, and is leasing the lab building in Munster. Investments in 2003 include, among others, an automatic packaging line in Sweden. Part of the 2003 investments are covered by leasing agreements, hence the increase of leasing and similar rights. In 2003, specific assets of the Budapest lab were sold, and the company outsourced its analogue photofinishing for Hungary to CeWe. The building and the equipment for the Budapest lab digital photofinishing remain with the company. In 2002 and 2001, investments were made in digital minilabs for various sites. During the same period, the Munster lab was upgraded to process volumes that were formerly handled in the labs sold to Kodak at the end of 2001.

(2) Investments in the retail divisionAlmost all shops in the retail division are being rented. The central building of Photo

Hall in Vorst (Belgium) is owned by the group. Hence, these investments mainly refer to the interior decoration of new shops and the refurbishments of existing shops – mostly under the Photo Hall brand. Investments in other tangible fixed asset also refer mainly to the decoration and fixtures for these shops.

No major interests have been taken in other enterprises the past three years. There are no investments in process. In the spring of 2004, a digital photofinishing line was installed in the Wetteren lab (Belgium). This equipment is being rented by Spector, and can therefore not be considered as an investment. According to Belgian GAAP, this is seen as an off-balance way of financing. The corporation has made no formal commitments for any future investment.

Net book value 31 December 2001 55,083 Acquisitions 7,804 Other (1,635) Depreciations (10,816)Net book value 31 December 2002 50,436 Acquisitions 8,298 Other (1,172) Depreciations (10,527)Net book value 31 December 2003 47,035

5. Financial fixed assets Mutations on financial fixed assets between 2002 and 2003 can be attributed to a number of elements. First is a value reduction of EUR 59 (000) on the participation in the ‘Multimediaprojectenfonds’ and the ‘Centre d’entreprises Héracles’. The ‘Multimedia-projectenfonds’ is the parent company of ‘I Fiamminghi’, a corporation in the cultural sector, in which a number of Flemish

companies have invested to demonstrate their local commitment. The participation Héracles dates from the indirect stock listing of Spector via the acquisition of the stock-listed holding Prominvest. The next element is a redrawing of a value reduction of EUR 112 (000) in the participation Firm. This participation was sold at the beginning of 2004 and was already entirely depreciated. Firm is an assurance company that provides coverage to the customer against international risks. As Prominvest held the participation in Firm, this participation has been transferred to Spector Photo Group upon the acquisition of Prominvest. Another element is the increase of securities in cash.

The mutation between 2001 and 2002 is mainly related to the decrease from EUR 4,200 (000) to EUR 0 of the participations in the German corporation Spector Verwaltung, that is accounted for using the equity method. Spector Verwaltung is the corporation in which Spector has grouped its remaining activities in Germany, following the divestiture or sale of its German photofinishing labs in 2001.

The long-term amounts receivable have also dropped in 2002 by EUR 277 (000) as a result of breaking the leasing contract for the building in Innsbruck (Austria) that year. Both dossiers are related to the decision of the group in 2001 to withdraw from the wholesale photofinishing market. Spector Photo Group sold almost all subsidiaries and/or their assets related to wholesale photofinishing to Kodak in 2001. The dossiers mentioned here concern assets that were not included in the 2001 agreement.

Assets 2003 2002 2001

1. Formation expenses 38 53 51

2. Intangible fixed assets 54,593 52,705 49,375

3. Consolidation differences 18,712 20,692 22,905

4. Tangible fixed assets 47,035 50,436 55,083

5. Financial fixed assets 2,328 2,139 6,594

6. Amounts receivable after one year 7,076 7,826 2,430

7. Stocks 43,139 44,550 48,315

8. Amounts receivable within one year 48,208 51,636 65,946

9. Investments 2,528 11,691 8,618

10. Cash 8,750 7,752 15,120



6. Amounts receivable after one year The major mutations of 2003 refer to three important subjects. First comes the portion of the amount receivable from LLP that expired in the accounting year. This portion is transferred to amounts receivable within the year. LLP is a major customer for photofinishing services from the French labs that were sold by Spector in the course of 2001. Second, the amounts receivable from Spector Verwaltung, Germany, have been partially reimbursed. Finally, a new loan has been granted to ‘Conseils Européens Associés’. This is a French corporation that has taken over the activities of the French SPIE and API subsidiaries after Spector’s strategic decision to divest these corporations in 2002.

The increase in 2002 versus 2001 is mainly related to two dossiers. On the one hand, there is the transfer of an amount receivable from Fotoinvest C.V. to Spector Coordination Centre. This amount expired in the accounting year and was transferred to amounts receivable after one year. It concerns a receivable of EUR 3,345 (000). It has become uncertain that the company will succeed in realizing these receivables in the short-term. The loan has been granted against market conform conditions. Fotoinvest is a reference shareholder that holds 16.04% of the shares in Spector Photo Group.On the other hand, the other amounts receivable increased in 2002 as a result of the EUR 3,100 (000) transfer from financial fixed assets – referring to an amount receivable from Spector Verwaltung.

7. Stocks Much effort has been devoted to the improvement of stock rotation in 2003 and 2002. This resulted in a further reduction of the working capital. Almost three quarters of the stock can be attributed to the Retail division.

8. Amounts receivable within one yearThe amounts receivable within one year include: 2003 2002 2001Trade debtors 28,258 29,693 35,242Other debtors 19,950 21,943 30,704

For 2003, the trade debtors declined stronger than the turnover, indicating a reduction in the days of sales outstanding. The decrease of trade debtors in 2002 is mainly related to the payment of open amounts receivables from Spector France (the corporation that was removed from the consolidation circle at the end of 2001, following the sale to Kodak).

Under other amounts receivable in 2003, the decrease of VAT and corporate taxes should be mentioned. The other amounts receivable also refer, in part, to the marketing contribution for which certain suppliers of Photo Hall have committed themselves. The decrease in 2002 can be mainly attributed to the transfer of the amount receivable from Fotoinvest for the long-term.

9. Investments This section includes: 2003 2002 2001Own shares 1,068 926 857Other investments 1,460 10,765 7,761

The group owns 108,804 of its own shares, of which 27,773 have been acquired in the course of 2003 at a price equal to or below the exercise price of the stock option plans (cf. page 74 of this document). The shares are valued as follows:

Other investments decreased because of the partial release of the escrow, at the end of December 2003. It concerned an amount of EUR 5,522 (000), from the total escrow of EUR 6,500 (000). This escrow was booked in 2001, following the share deal related to Spector France and the asset deal related to Spector Verwaltung in Germany. This part of the escrow expired at the end of 2003. Note: on 30 January 2004, the remaining part of the escrow, for an amount of EUR 978 (000)

Invest-ments

Number Exercise price

Amount

Alexander 54,326 200

9.69 1.24

526,419 248*

526,667

SPGR 27,773 10,924 15,581

9.69

10.45

272,956* 105,854 162,821 541,631

108,804 1,068,298

* Below the exercise price


and concerning the share deal related to Bilderland (Austria), was also released. This amount was included under Investments and is now also released.

10. Cash See also the cash flow statement that is included in this document.At the end of 2001, the cash position was at an extraordinarily high level, as it could not be further reduced as a consequence of the year-end closing of the banks because of the euro transition.

11. Accruals and deferrals The accruals and deferrals primarily include costs of maintenance marketing in the mail order division that should be carried forward since the income from these marketing campaigns will be achieved partially in the following year. This heading also includes costs to be carried forward that are related to insurance, maintenance contracts, and acquired income.

LIABILITIES (in EUR 000)

1. Shareholder’s equity The consolidated reserves grew to EUR 5,726 (000) in 2003. This mutation in 2003 is related only to the result, the transfer of the revaluation surpluses on buildings referring to the already depreciated portion and the proposed dividend in the amount of EUR 2,434 (000). The calculation differences in the shareholder’s equity are due to the switch to the euro in the balance sheet of the consolidated corporation, expressed in currency.

The changes in 2002 refer to the merger through absorption of Photo Hall, which took place in that year. As a consequence of this operation, 1,180,355 shares of Photo Hall have been exchanged for an equal number of shares of Spector Photo Group. As a result, the share capital is being represented by 6,761,253 shares.

Reserves as of 31 December 2000 (68,271) Result of the financial year 2001 (18,583) Capital decrease through incorporation of losses 95,449Reserves as of 31 December 2001 8,595 Result of the financial year 2002 245 Changes regarding merger Photo Hall 3,724 Transfer of revaluation surpluses 1,467 Dividend 2002 (811)Reserves as of 31 December 2002 13,221 Result of the financial year 2003 8,124 Transfer of revaluation surpluses 35 Dividend 2003 (2,434)Reserves as of 31 December 2003 18,946

2. Third party interestsThe 2003 mutation under this header is largely related to the share of third parties in the consolidated result, and to the pay-out of a fixed dividend to NIB Capital. The third party interests refer to Fotolabore Tagliabue (FLT) in Italy (for 49%) and Digital Photoworks (for 49.26%). FLT is a photofinishing lab in the north of Italy, which represents less than 5% of the group turnover. Digital Photoworks is the legal entity that is operating the mail order activities in Australia, under the brand name ExtraFilm. In 2001, this entity was fully included in the consolidation circle for the

first time, and represents but a fraction of the group turnover. Finally, there are the participation certificates which have been concluded in September 2002 between NIB Capital and Spector Coordination Centre for the amount of EUR 12,500 (000). After a five-year period, Spector can exercise a call option to buy these certificates at nominal value, increased with the dividends that still have to be paid-out, if applicable. To date, no concrete decision has been made in this respect. Similar to shares, participation certificates represent a participation in the shareholder’s equity, but do not offer voting or profit-sharing rights. A fixed dividend is granted in exchange for relinquishing these rights.

In 2002, third party interests have considerably decreased as Photo Hall became 100% integrated into the company as a result of the above-mentioned merger operation. In 2001, third party interests in Photo Hall represented 46%. In 2002, the portion of the third party interests in Digital Photoworks changed from 48.28% to 49.26%.

3. Provisions and deferred taxesIn 2003, there was a decrease in the provisions for other risks and costs, which can be mainly attributed to:

• The appropriation of a provision that was created in 2002 at the sale of API and SPIE for an amount of EUR 450 (000). SPIE and API are two French corporations that develop technology and software for the photofinishing sector. Both corporations have been excluded from the consolidation circle at the end of 2002.

Liabilities 2003 2002 2001

1. Shareholder’s equity 40,898 37,312 29,177

2. Third party interests 14,667 14,672 24,240

3. Provisions and deferred taxes 9,948 13,052 14,945

4. Amounts payable after one year 46,406 63,536 76,452

5. Amounts payable within one year 119,985 121,027 129,831


Assets 2003 2002 2001

1. Formation expenses 38 53 512. Intangible fixed assets 54,593 52,705 49,3753. Consolidation differences 18,712 20,692 22,9054. Tangible fixed assets 47,035 50,436 55,0835. Financial fixed assets 2,328 2,139 6,5946. Amounts receivable after one year 7,076 7,826 2,4307. Stocks 43,139 44,550 48,3158. Amounts receivable within one year 48,208 51,636 65,9469. Investments 2,528 11,691 8,61810. Cash 8,750 7,752 15,120



• The reversal of a provision for the Pixelnet dossier in the amount of EUR 2,232 (000). In 2002, a provision has been created for EUR 2,975 (000) with respect to certain income that Spector has realized from a previous agreement with Pixelnet. As a consequence of the timing of Pixelnet’s bankruptcy, the performances delivered by Spector fell in the ‘freeze period’. Therefore, the trustees of Pixelnet expressed their reserves, and Spector made a provision. A settlement of EUR 743 (000) has been concluded to solve this deadlock, bringing a definite end to the initial risk.

• The creation of a provision for an amount of EUR 347 (000) for disputes with the tax administration. These disputes are mainly related to pending objections with respect to corporate taxation. A provision has been created for those disputes and the fiscal consultants hold the opinion that it is probable that they are sufficient. For the other cases, the Board of Directors holds the opinion that the risks are remote, and hence no provision needs to be provided.

• A reversal of a provision for deferred taxes for an amount of EUR 271 (000).

In 2002, the decrease in the provisions can be mainly attributed to three subjects:• A decrease in the provisions for major

repairs and maintenance works, which is fully attributable to the Austrian corporation Spector Fotohandel.

• An appropriation of a provision that has been created for the completion of the sale agreement which was closed at the end of 2001 with Kodak.

• The booking of a provision related to Pixelnet (cfr. above).

4. Amounts payable after one year The EUR 17,130 (000) decrease in 2003 is the result of the mutation of financial debts on more than one year. The 2003 mutation of leasing debts is on the one hand related to the transfer booking of long-term to short-term, and on the other hand to new financing means.

In 2002, too, an important part of the decrease (EUR 12.9 million) is the result of the mutation of financing debts on more than one year that expire within the year. Early in 2002, an agreement was reached with the banks to rearrange long-term debts. The decrease in leasing debts was then mainly related to the redemption of the lease agreements regarding the buildings in Graz (Austria) and Munster (France), as well as the breach of the lease agreement regarding the building in Innsbruck (Austria).

5. Amounts payable within one yearIn 2003 as in 2002, the mutation in financial debts are explained by the amounts payable after one year and that expire within the year. For both years, this decrease is mainly situated in short-term debts with credit institutions.

The trade debts and the debts related to taxes and social charges also decreased in 2003. The increase in other amounts payable is related to the dividend that has to be paid out for 2003 results.

For 2002, there is a decrease in the short-term debts with credit institutions, as well as a decrease of trade debtors and other loans.

6. Accruals and deferralsThe accruals and deferrals (liabilities) refer mainly to the costs for interests, rents, and income to be carried forward.

PROFIT AND LOSS ACCOUNT (IN EUR 000)

1. Operating income The 2003 turnover dropped slightly compared to 2002. This is a combined effect of a slight decrease of sales for the mail order activities, a sales decrease of the other activities, and a growth in turnover of the retail activities. The combined turnover from the core activities (mail order and retail) grew by 2.3%.

On an annual basis, mail order photofinishing activities show a sales decrease of 4.1% at flat selling prices. The volume of analogue film processed decreased by 3.5% on an annual basis. This decrease is mainly offset by the sale of new products, like the VCD. The sales of digital prints, too, continued their growth. The turnover from digital photo services continued to increase and now represents 2.9% of the total turnover derived from photofinishing activities. In 2002 and 2001, this portion amounted to 2.2% and 1.3% respectively. Still, this growth was not yet sufficient in 2003 to fully offset the decline in analogue photofinishing. The total number of photo prints (of analogue as well as digital

Resultatenrekening 2003 2002 2001

1. Operating income 392,321 395,967 545,059

2. Operating charges 376,216 377,224 533,879

3. Financial results (5,835) (7,275) (10,863)

4. Extraordinary results 1,340 (4,349) (14,926)

5. Taxes and deferred taxes (2,583) (1,726) (2,241)

6. Share in the results for companies with equity method 0 (4,200) 0


exposures) that has been processed by the group in 2003, is 5% below the 2002 level.

The turnover of the retail activities grew by 5.6%. The sales growth in retail is strongly related to the breakthrough of digital photography. Digital still cameras and related products experienced great success. Other product categories like multimedia and telecom also enjoyed both a volume and a sales growth.

The strong decrease in the turnover from the other activities is determined by the wholesale and export organizations. The French wholesale activities have been reorganized and the product assortment modified, for example, through the termination of the minilab department. The weak dollar had a heavy impact on the sales level of the export organization. It purchases its trade goods in euros, but is competing with companies that purchase trade goods in the US in dollars.

The heading ‘Other operating income’ can be attributed mainly to contributions in marketing campaigns made by key suppliers, rental income, and various costs that the company was able to recharge.

The successive decreases in 2002 and 2001 are mainly related to the reduced consolidation circle of the group, following the sale to Kodak and the termination of a number of activities in Germany, France, and Austria.

In 2002, Spector Photo Group achieved a sales figure of EUR 380.9 million versus EUR 379.5 million in 2001 at an equal

consolidation circle. In 2002, the turnover from mail order activities grew 5% while volume growth (volume of film processed) grew by almost 2%. The retail activities grew in 2002 by 5.5% and Other activities decreased by 33.8%. The latter refers to the same reasons as those valid for 2003.

2. Operating chargesThe changes between 2002 and 2003 are the result of seven factors.- The total cost for trade goods, raw

materials, and consumables decreased by 1.4% while the turnover decreases by 1% in 2003. This evolution provides evidence of the continued efforts to improve operating margins.

- The increase of services and miscellaneous goods of 2003 can be partially attributed to the retail division. This is mainly related to the indexing of rental charges in Belgium and the closing of rental agreements. The transformation of the Hungarian retail chain to the Photo Hall concept also generated additional costs. Another part of the increase can be attributed to the mail order division, which is facing a trend of increasing logistic costs over the last couple of years. The postal costs represent a major cost factor for the mail order organizations.

- The total personnel costs decreased compared to the previous accounting year, which is the result of an optimization of salary charges in all group sites.

- The increase of depreciations on formation expenses and intangible and tangible fixed assets can be attributed for an amount of EUR 897 (000) to the intangible fixed assets. This is a consequence of

the investments in marketing expansion that have been made over the past years. Depreciations of tangible fixed assets decreased by EUR 288 (000).

- The increase of value reductions on stocks and trade receivables is mainly related to Fotronic and Sacap France. They, like their customers, were confronted with a difficult market environment in 2003.

- The depreciations of positive consolidation difference increased in 2003 because of the depreciation of goodwill as a result of the acquisition of Omninet.

- The heading ‘Other operating charges’ mainly includes the corporate taxes on operations, the costs to be recharged, environmental charges, and lower values on customers in the mail order division.

The decreases in 2002 and 2001 are mainly related to the deconsolidation of the labs in France, Germany, and Austria.

3. Financial resultsThe improved financial results of 2003, 2002, and 2001 are the result of an almost flat figure for financial income and decreasing financial charges. The following were factors in determining the result:

- The decrease of the debt charges that are closely related to the lowered interest charges as a consequence of the reduction of financial debts. Interest charges have decreased over the past three years by EUR 10,546 (000) in 2001, to EUR 7,278 (000) in 2002, and EUR 5,851 (000) in 2003 respectively.

- Discounts granted by supplies amount to EUR 1,388 (000) in 2003,

Profit and loss account 2003 2002 2001








EUR 1,588 (000) in 2002, and EUR 1,903 (000) in 2001. In 2003, slightly lower discounts for cash payment have been obtained, because a purpose-oriented analysis was been made with the objective of reducing working capital. There were also discounts granted to customers, mainly in the retail division. These discounts amount EUR 477 (000) for 2003 and EUR 530 (000) for 2002. For 2001, this amount is higher, EUR 1,527 (000). This surplus refers mainly to the customer discounts that were then granted by the wholesale photofinishing labs in France, Germany, and Austria.

- Currency exchange differences have only a limited impact on the financial result. In 2003, the favourable currency exchange differences, deriving mainly from the Hungarian forint and the Swiss franc, amounted to EUR 1,377 (000), while the Swedish crown in particular yielded negative exchange differences of EUR 637 (000). In 2002, the impact of currency exchange differences was limited, and the favourable differences of EUR 587 (000) completely offset the negative differences of EUR 487 (000). In 2001, the favourable exchange differences of EUR 1,653 (000) faced negative exchange differences of EUR 2,893 (000), which were mainly caused by the Swedish crown. Currency exchange differences are caused by various transactions between Spector Photo Group and its subsidiaries in countries beyond the Eurozone. Items included are, among others, the sale of raw materials and consumables for photofinishing, which are purchased at group level and are subsequently supplied to the subsidiaries.

The mutation of loans and current accounts can also cause currency exchange differences.

- Over the last few years, banking costs (including costs for electronic banking) have had a heavier effect. They amount to EUR 1,497 (000) in 2001, EUR 1,571 (000) in 2002, and EUR 1,538 (000) in 2003.

- The value of our own shares fluctuates parallel with the stock rate as of the end of December. The fluctuations are limited to the exercise price of the current stock option plans. For 2003, there is a value reduction on current assets in the amount of EUR 121 (000), which is mainly related to this. In 2002, there is a value reduction of EUR 68 (000) on our own shares. In 2002, the Photo Hall shares were annulled via the reserves. In 2001, there were fluctuations in the value of the shares Spector Photo Group, Photo Hall, and Digital Now. This represented a value reduction of EUR 1,092 (000). Digital Now is a corporation that develops software for digital photography.

More specifically for 2001, there was a reversal of EUR 2,099 (000) of a value reduction booked in 2001 on the current account of SPIE. This French corporation develops technology and software for the photofinishing industry. SPIE was included in the consolidation circle in 2001 and 2002. Because SPIE was not included in the consolidation circle at the time that this value reduction was booked, it was taken as a loss. The reimbursement of the debt by SPIE took place at a time when this corporation was effectively included in the consolidation circle. Hence, the write-off has been re-included in

the result.Spector Photo Group does not make any use of derivative financial products for speculative purposes.

4. Extraordinary results

Extraordinary incomeThe major extraordinary income in 2003 refers to:- A reversal of a value reduction on financial

fixed assets with respect to Firm N.V.. This participation has been entirely written off and sold at beginning of the accounting year 2004 for EUR 112 (000).

- The reversal of a provision for an amount of EUR 2,232 (000) that was created in 2002 with respect to the income realized by Spector from previous agreements with Pixelnet (cfr. separate paragraph).

- The write-off of a non-reimbursable debt in the amount of EUR 86 (000).

The extraordinary income in 2002 is mainly related to:- The reversal of a provision of EUR 339

(000) with respect to the deconsolidation of Spector South Africa. To this end, a provision has been created as of 31 December 2001 for terminating this corporation, while a more favourable settlement has been reached in the course of 2002.

- The debt waiver by Pixelnet, for which a provision was instantly created (cfr. separate paragraph).

- The dossier concerning Spector Verwaltung (cfr. separate paragraph).

For 2001, there was reversal of a provision in the amount of EUR 4,200 (000) concerning


the participation Spector Verwaltung (cfr. separate paragraph).

Extraordinary chargesThe extraordinary charges of 2003 are mainly related to:- Depreciations and value reductions on

intangible and tangible fixed assets in the amount of EUR 184 (000), which can be attributed to the retail division.

- A value reduction on financial fixed assets concerning the participation ‘Multimedi-aprojectenfonds’ for EUR 25 (000) and the ‘Centre d’entreprises Héracles for EUR 35 (000).

- The appropriation of a provision for completion of the sale of SPIE and API in the amount of EUR -450 (000).

- The partial appropriation of a provision for the completion of the settlement with respect to Pixelnet in the amount of EUR -743 (000).

The extraordinary charges for 2002 refer mainly to:- The appropriation of a provision of EUR

3,800 (000) that was created in 2001 for the agreement with Kodak and the re-structuring of the Corporate organization in function of the reduced consolidation circle of the group at that time. In the same respect, an amount of EUR 2,403 (000) for other extraordinary charges needs to be mentioned.

- The extraordinary charges for an amount of EUR 8,447 (000) for the completion of the agreement with Kodak. It mainly concerns the difference between the real

situation after transferring the related entities, and the assumptions regard-ing the balance sheet situation and the net financial debts of these transferred entities, as they were put forward when negotiating the agreement.

- A provision out of prudence, following the debt waiver by Pixelnet (cfr. separate paragraph).

- The appropriation of a provision of EUR 951 (000) for the loss stemming from the closure of the shops of the Austrian corporation Spector Fotohandel and the breach of the leasing contract for the building in Innsbruck. In 2002, a value reduction has been booked in this respect for an amount of EUR 1,219 (000).

- A provision in the amount of EUR 650 (000) for the completion of the sale of SPIE as well as for future follow-up costs related to the German corporations (for the later: cfr. separate paragraph).

- The merger between Spector Photo Group and Photo Hall caused an amount of EUR 807 (000) for other extraordi-nary charges in 2002.

- The remaining other extraordinary charges amount to EUR 183 (000).

The extraordinary charges of 2001 are composed of the following main elements:- An extraordinary depreciation in the

amount of EUR 790 (000) of the con-solidation goodwill on SPIE.

- Extraordinary depreciations in the amount of EUR 3,414 (000) on the central investments, among others, in the field of Information Technology. These de-

preciations refer to the activities that have been excluded from the consolidation circle as a consequence of the agreement with Kodak in 2001.

- The costs and provision of EUR 10,681 (000) can be situated in the same framework, as they refer to the divested entities in France, Germany, and Austria (restructuring costs, study and counsel-ling fees, registration rights, etc.).

- A value reduction of EUR 2,855 (000) on the financial assets, the majority of which is related to the divestiture of the wholesale photofinishing labs in France, Germany, and Austria.

5. Taxes and deferred taxesIn 2003, the result of the deferred taxes is positive. Taxes payable refer to the positive results at Photo Hall and the mail order organizations. This is also the case for 2002 and 2001.

The transfer booking to deferred taxes in 2002 refers to the latent tax debts as a result of the booking of expansion marketing and other temporary differences. The withdrawal from deferred taxes in 2001 was related to the reversal of previously created deferred taxes and to the adjustment of the tax rate of Photo Hall because of the modified Company Law.

In 2001, the withdrawal stems from the deconsolidation of the activities in the field of wholesale photofinishing and from the extraordinary depreciations on intangible and tangible fixed assets.

Profit and loss account 2003 2002 2001








6. Share in the result for companies with equity method The amount in 2002 refers to Spector Verwaltung (cfr. separate paragraph). This heading also refers to the German corporations in 2003. The shareholder’s equity of these corporations remains negative in 2003. Spector has no other obligations apart from those already covered by a provision.

Extraordinary results related to Pixelnet – a brief overview

- In 2002, an amount of EUR 2,975 (000) was booked for a debt waiver by Pixelnet. Pixelnet is the German corporation that acquired Porst Retail in early 2001 from Spector for a symbolic German mark.

- Pixelnet applied for insolvency in mid-2002. In the mean time, Spector had processed the debt waiver as an extraordi-nary income in its accounts.

- The trustees of Pixelnet expressed their reserves towards the income for Spector,

as it was also generated in the ‘freeze pe-riod’. Out of prudence, Spector instantly made a provision for extraordinary charges.

- At the end of 2003, a favourable settle-ment was concluded with the trustees of Pixelnet, on condition of a payment of EUR 743 (000). The created provision is being appropriated for this amount. The remaining amount of the provision, EUR 2,232 (000), is accounted for as an ex-traordinary income. This brings a definite end to the initial risk.


At the end of 2002, all assets of the German companies of Spector Photo Group have been written-off to EUR 0. A provision for extraordinary liabilities and charges was created for Spector Verwaltung, assuming that nothing would be realised.

At the end of 2001, an agreement has been closed involving the sale of the main assets of the German companies of Spector Photo Group to Kodak. In 2001, it turned out that the group could still valorise Spector Verwaltung’s assets (i.e. two buildings – in Dortmund and in Dresden). As a consequence, the provision of 2000 was withdrawn for an amount that corresponds to the valuation for the total assets (EUR 4.2 million).

As it is the intention to liquidate Spector Verwaltung once the remaining German assets are realised, this participation has been processed with the equity method at closing date 2001 (value EUR 4.2 million).

In 2002, it turned out that a debt waiver by Spector Coordination Centre could not take place. As a consequence, the participation held in Spector Verwaltung (EUR 4.2 million) lost its value, as no reimbursement of the

shareholders could be envisaged anymore. On the other hand, Spector Coordination Centre – being the main creditor – was able to book an extraordinary income (worth EUR 4.2 million) at the consolidated level. More technical details about this matter are included hereunder.

In 2002, the building in Dortmund has been sold for EUR 1.1 million. This amount of EUR 1.1 million has been appropriated in 2002 to pay back part of the debt of Spector Verwaltung towards Spector Coordination Centre – i.e. not as a compensation for Spector Photo Group as shareholder. In this way, the amount of EUR 1,100 (‘000) was booked in the consolidated accounts under the heading “other extraordinary income”.

As Spector Verwaltung is a company with equity method, this implies also that the financial fixed assets of Spector Photo Group were reduced with EUR 1.1 million via the heading “share in the loss of companies with equity method”.

Upon realisation of the other assets of Spector Verwaltung (the building in Dresden) the income from this realisation will be appropriated in a similar way – i.e. Spector

Verwaltung reimbursing an amount receivable in Spector Coordination Centre.

As Spector Verwaltung is a company with equity method, this implies also that the financial fixed assets of Spector Photo Group were reduced with EUR 3.1 million via the heading “share in the loss of companies with equity method”.

The outstanding debt (EUR 3.1 million) of Spector Coordination Centre has been included in the heading “other extraordinary income” and has been processed in the balance sheet under the heading “amounts receivable after one year”.

Summarised, this means that in the balance sheet the financial fixed assets of Spector Photo Group have decreased with EUR 4.2 million (EUR 1.1 million + EUR 3.1 million), and that the heading “amounts receivable after one year” increases with EUR 3.1 million.

In the Profit a Loss account, the share in the result of companies with equity method (EUR - 4.2 million) is neutralised under the heading “other extraordinary income” (EUR 1.1 million + EUR 3.1 million).

Extraordinary results and detailed explanation on bookings under the item “Share in the results for companies with equity method” regarding Spector Verwaltung

43Spector Photo Group Annual Report 2003

ASSETS 31.12.2003 31.12.2002 31.12.2001

Fixed assets 122 706 126 024 134 008

I. Formation expenses 38 53 51

II. Intangible assets 54 593 52 704 49 375

III. Positive consolidation differences 18 712 20 692 22 905

IV. Tangible assets 47 035 50 436 55 083

A. Land and buildings 14 604 15 744 15 916

B. Plant, machinery and equipment 17 186 19 595 21 947 C. Furniture and vehicles 1 229 1 426 1 752

D. Leasing and other similar rights 6 592 5 788 7 222

E. Other tangible assets 7 385 7 644 7 490

F. Assets under construction and advance payments 39 239 756

V. Financial assets 2 328 2 139 6 594

A. Companies accounted for using the equity method 4 200

1. Participating interests 4 200

B. Other enterprises 2 328 2 139 2 394

1. Participating interests and shares 415 358 337

2. Amounts receivable 1 913 1 781 2 057

Current assets 113 361 127 380 145 012

VI. Amounts receivable after one year 7 076 7 826 2 430

A. Trade debtors 67

B. Other amounts receivable 7 076 7 826 2 363

VII. Stocks and contracts in progress 43 139 44 550 48 315

A. Stocks (2) 43 134 44 550 48 315

1. Raw materials and consumables 1 830 1 936 2 137

2. Work in progress 45

3. Finished goods 70 145 54

4. Goods purchased for resale 41 197 41 942 45 033

6. Advance payments 37 482 1 091

B. Contracts in progress 5

VIII. Amounts receivable within one year 48 208 51 636 65 946

A. Trade debtors 28 258 29 693 35 242


IX. Investments 2 528 11 691 8 618

A. Own shares 1 068 926 857

B. Other investments and deposits 1 460 10 765 7 761

X. Cash at bank and in hand 8 750 7 752 15 120

XI. Deferred charges and accrued income 3 660 3 925 4 583

Total assets 236 067 253 404 279 020

(in EUR 000)

Consolidated balance sheet 2003 LIABILITIES 31.12.2003 31.12.2002 31.12.2001

Shareholders’ equity 40 898 37 312 29 177

I. Share capital 22 392 22 392 17 730

A. Issued capital 22 392 22 392 17 730

III. Revaluation surpluses 531 566 2 033

IV. Consolidated reserves 18 946 13 221 8 595

V. Negative consolidation differences 34 34 34

VI. Translation differences (1 014) 1 087 775

VII. Investment grants of the group 9 12 10

Minority interests 14 667 14 672 24 240

Provisions, deferred tax and latent taxation liabilities 9 948 13 052 14 945

IX. A. Provisions for liabilities and charges 2 702 5 536 7 370

1. Pensions and similar obligations 654 572 620

2. Taxation 1 302 955 950

3. Major repairs and maintenance 318

4. Other liabilities and charges 746 4 009 5 482

B. Deferred tax and latent taxation liabilities 7 246 7 516 7 575

Creditors 170 554 188 368 210 658

X. Amounts payable after one year 46 406 63 536 76 452

A. Financial debts 46 406 63 536 76 452

3. Leasing and other similar obligations 5 384 5 201 6 430

4. Credit institutions 40 998 58 242 69 484

5. Other loans 24 93 538

XI. Amounts payable within one year 119 985 121 027 129 831

A. Current portion of amounts payable after one year 17 976 14 724 3 931

B. Financial debts 30 970 35 997 44 826


2. Other loans 14 173

C. Trade debts 46 193 46 873 54 988

1. Suppliers 42 435 41 456 49 266

2. Bills of exchange payable 3 758 5 417 5 722

D. Advances received on contracts in progress 379 393 378

E. Amounts payable regarding taxes, remuneration and social security 19 744 19 917 20 858

1. Taxes 13 658 12 877 14 146

2. Remuneration and social security 6 086 7 040 6 712

F. Other amounts payable 4 723 3 123 4 850

XII. Accrued charges and deferred income 4 163 3 805 4 375

Total liabilities 236 067 253 404 279 020

(in EUR 000)

(After profit allocation (1))

(1) Article 124 of the Royal Decree of 30th January 2001, in execution of the Company Law Code.(2) The stock items can be combined (cf. article 158, second paragraph of the above-mentioned Royal Decree).

44 Annual Report 2003 Spector Photo Group

INCOME STATEMENT 31.12.2003 31.12.2002 31.12.2001 I. Operating income 392 321 395 967 545 059

A. Turnover 376 846 380 881 515 458

B. Increase/Decrease in stocks of finished goods, work and contracts in progress (11) 8 (8)

C. Fixed assets - own construction 788 1 065 59

D. Other operating income 14 698 14 013 29 550

II. Operating charges (376 216) (377 224) (533 879)

A. Raw materials, consumables and goods for resale 234 302 237 705 297 348

1. Purchases 234 029 237 911 309 313

2. Increase/Decrease in stocks 273 (206) (11 965)

B. Services and other goods 55 058 53 443 87 651

C. Remuneration, social security costs and pensions 49 515 51 217 92 411

D. Depreciation of and other amounts written off formation expenses, intangible and tangible fixed assets 26 901 26 386 37 682

E. Increase/Decrease in amounts written off stocks, contracts in progress and trade debtors 1 504 409 3 793

F. Increase/Decrease in provisions for liabilities and charges 69 (231) (91)

G. Other operating charges 6 652 6 081 10 938

I. Amounts written off positive consolidation difference 2 215 2 214 4 147

III. Operating profit 16 105 18 743 11 180

IV. Financial income 3 425 3 070 5 601

A. Income from financial fixed assets 294

B. Income from current assets 612 824 1 523

C. Other financial income 2 813 2 246 3 784

V. Financial charges (9 260) (10 345) (16 464)

A. Interests and other debt charges 5 851 7 278 10 546

C. Increase/Decrease in amounts written off current assets other than those mentioned under II.E. 121 (71) (943)

D. Other financial charges 3 288 3 138 6 861

VI. Profit/Loss on ordinary activities before taxation 10 270 11 468 317

(in EUR 000) INCOME STATEMENT 31.12.2003 31.12.2002 31.12.2001

VII. Extraordinary income 2 431 7 669 5 055

A. Adjustments to depreciation of and to other amounts written off intangible and tangible fixed assets 18 3

C. Adjustments to amounts written off financial fixed assets 113

D. Adjustments to provisions for extraordinary liabilities and charges 2 232 386 4 200

E. Gain of disposal of fixed assets 52 194

F. Other extraordinary income 86 7 213 658

VIII. Extraordinary charges (1 091) (12 018) (19 981)

A. Extraordinary depreciation of and amounts written off formation expenses, intangible and tangible fixed assets 184 117 3 414

B. Extraordinary amounts written off positive consolidation differences 790

C. Amounts written off financial fixed assets 59 2

D. Provisions for extraordinary liabilities and charges (1 054) (1 249) 3 696

E. Loss and disposal of fixed assets 1 308 2 855

F. Other extraordinary charges 1 902 11 842 9 224

IX. Profit/Loss for the financial period before taxation 11 610 7 119 (14 609)

X. A. Transfer from deferred tax and latent taxation liabilities 2 022 1 377 3 184

B. Transfer to deferred tax and latent taxation liabilities (1 750) (1 318) (2 215)

XI. Income taxes (2 856) (1 785) (3 210)

A. Income taxes (2 909) (2 226) (3 326)

B. Adjustments of income taxes and write-back of tax provisions 53 441 116

XII. Profit/Loss for the financial period 9 026 5 393 (16 850)

XIII. Share in the result of the companies accounted for using the equity method (4 200)

B. Losses (4 200)

XIV. Consolidated profit/loss 9 026 1 193 (16 850)

A. Share of minority interests 902 948 1 733

B. Share of the group 8 124 245 (18 583)

(in EUR 000)

Consolidated balance sheet 2003 (After profit allocation (1))


II. Wholly owned subsidiaries

A. SUBSIDIARIES, FULLY CONSOLIDATED (), ACCOUNTED FOR USING THE EQUITY METHOD () OR PROPORTIONAL CONSOLIDATION ()Name, full adress V.A.T.- or Share inof registered office national number the capital (in %)

ALEXANDER PHOTO SA 1999 2234 620 100.00 Boulevard Royal 11, 2449 Luxembourg, Luxembourg DBM COLOR NV BE 402.247.617 100.00 Kwatrechtsteenweg 160, 9230 Wetteren, Belgium DIGITAL PHOTOWORKS LTD (EXTRA FILM Australia) 50.74 Ferry Road 53, Southport, QLD 4215, Australia EDRO BVBA BE 437.051.118 100.00 Kwatrechtsteenweg 160, 9230 Wetteren, Belgium EXTRA FILM AB SE 556 069 600 601 100.00 Box 300, 45780 Tanumshede, Sweden EXTRA FILM AG CH 213.717 100.00 Gewerbestrasse 18, 4123 Allschwill, Switzerland EXTRA FILM AS NO 919 322 942 100.00 Box 300, 45780 Tanumshede, Sweden EXTRA FILM AUSTRIA GMBH ATU 575 157 44 100.00 Henckelgasse 19, 1140 Wenen, Austria EXTRA FILM BELGIUM NV BE 447.697.065 100.00 Kwatrechtsteenweg 111, 9230 Wetteren, Belgium EXTRA FILM DENMARK A/S DK 17 42 19 05 100.00 Vaerkstedsgärden, 11, 2620 Albertslund, Denmark OY EXTRA FILM AB FI 0107865-1 100.00 P.B. 1440, 00002 Helsingfors, Finland EXTRA FILM EUROPE NV BE 425.953.625 100.00 Kwatrechtsteenweg 160, 9230 Wetteren, Belgium EXTRA FILM FRANCE SA FR 48 331 704 122 100.00 Rue Papin 24, 59650 Villeneuve d’Ascq, Cédex, France EXTRA FILM LOGISTICS AG 562 363 100.00 Zugerstrasse 50, 6340 Baar, Switzerland EXTRA FILM NEDERLAND BV NL 6400334B01 100.00 Antennestraat 74, 1322 AS Almere, The Netherlands FICOBEL SA BE 417.669.825 100.00 Rue de Lusambo 36, 1190 Bruxelles, Belgium FILMOBEL NV BE 408.058.709 100.00 Kwatrechtsteenweg 160, 9230 Wetteren, Belgium FLT FINANZIARIA SPA IT 13146200152 51.00 Piazza Filippo Meda 3, 20121 Milano, Italy

Notes


A. SUBSIDIARIES, FULLY CONSOLIDATED (), ACCOUNTED FOR USING THE EQUITY METHOD () OR PROPORTIONAL CONSOLIDATION ()Name, full adress V.A.T.- or Share inof registered office national number the capital (in %)(1)

FLT SRL IT 11908360156 51.00 Corzo Venezia 16, 20121 Milano, Italy

FOTOCOOP NV BE 404 888 886 100.00 Kontichsesteenweg 19, 2630 Aartselaar, Belgium FOTRONIC SA BE 423.052.731 100.00 Avenue Victor Hugo 7, 1420 Braine l’Alleud, Belgium FÖFOTO KFT 10655302-2-44 100.00 Nándorfejérvári út 35, 1119 Budapest, Hungary HIFI INTERNATIONAL SA LU 124.90.336 100.00 Route de Luxembourg, BP 1, 3201 Bettembourg, Luxembourg INTERCOLOR FOTOLABORBETRIEBE GmbH (1) DE 811 24 22 68 100.00 Laufamholzstrasse 171, 90482 Nürnberg, Germany MAXICOLOR FRANCE SA FR 22 409 495 074 100.00 Rue des Artisans 10, 68140 Munster, France NORD-WEST-COLOR FOTOLABORBETRIEBE GmbH (1) DE 811 19 42 71 100.00 Lindenhorsterstrasse 38-40, 44147 Dortmund, Germany OMNINET SARL, FR 04 424 299 014 100.00 Avenue des Ternes, 88, 75017 Paris , France ORC EUROPE SARL, FR 51 348 331 281 100.00 Rue Papin, 24, 59650 Villeneuve d’Ascq , France PHOTO FINANCE BV NL 6511004B01 100.00 Antennestraat 74, 1322 AS Almere, The Netherlands PHOTO HALL CENTER SA BE 427.496.420 100.00 Chaussée de Waterloo 715,1180 Brussel, Belgium PHOTO HALL EST SA BE 456.638.683 100.00 Bld. des Gérardchamps 48, 4800 Verviers, Belgium PHOTO HALL FRANCE SARL FR 70 391 700 440 100.00 Place du Marché 26, 57100 Thionville, France PHOTO HALL MULTIMEDIA SA BE 477.890.096 100.00 Rue du Lusambo 36, 1190 Brussel, Belgium PHOTO HALL NOORD SA BE 406.962.807 100.00 Rue du Lusambo 36, 1190 Brussel, Belgium PHOTO HALL SUD SA BE 438.185.919 100.00 Chausseé de Bruxelles 299, 1410 Waterloo, Belgium PHOTO HALL WEST NV BE 464.091.748 100.00 Brabantdam 49, 9000 Gent, Belgium

(1) The activities of these daughter companies have already been discontinued envisaging their liquidation.

Notes


Name, full adress V.A.T.- or Share inof registered office national number the capital (in %)(2)

PHOTO HOLDINGS IRELAND Ltd 659 45 42 I 100.00

38/39, Fitzwilliam Square, Dublin 2, Ireland PHOTOMEDIA NV BE 439.476.019 100.00 Kwatrechtsteenweg 160, 9230 Wetteren, Belgium PHOTO RE Ltd 659 5115 R 100.00 38/39, Fitzwilliam Square, Dublin 2, Ireland PLASTIC UNIT PRODUCTION HOLDING SA BE 431.368.205 100.00 Avenue Victor Hugo 7, 1420 Braine-l’Alleud, Belgium PROMO CONCEPT INVESTMENT BVBA BE 423.852.188 100.00 Kwatrechtsteenweg 158, 9230 Wetteren, Belgium SACAP Ltd 100.00 Unit A, 19/F, One Capital Place - 18, Luard Road, Wanchai, Hong Kong SACAP SA FR 19 353 224 694 100.00 Rue Logelbach 124, 68000 Colmar, France SPECTOR COORDINATIECENTRUM NV BE 437.663.406 100.00 Kwatrechtsteenweg 160, 9230 Wetteren, Belgium SPECTOR FOTOHANDEL GmbH ATU 151 36 500 100.00 Babenbergerstrasse 88, 8020 Graz, Austria SPECTOR GRAND EST SA FR 01 312 519 317 100.00 Rue des Artisans 10, BP 33, 68140 Munster, France SPECTOR NEDERLAND BV NL 005129679B01 100.00 Antennestraat 74, 1322 AS Almere, The Netherlands SPECTOR ROUTING BVBA BE 432.931.289 100.00 Kwatrechtsteenweg 160, 9230, Wetteren, Belgium SPECTOR VERWALTUNG GmbH(1) 214 116 20551 100.00 Laufamholzstrasse 171, 90482 Nürnberg, Germany STL FRANCE BELGIUM NV BE 438.407.039 50.00 Rue des Lutins 8, 1190 Vorst, Belgium VIVIAN FOTO AB SE 5 563 348 100 100.00 14 Göteborg-Bohuslän, Tanum Kommun, Sweden VIVIAN PHOTO PRODUCTS NV BE 428.718.323 100.00 Kwatrechtsteenweg 160, 9230 Wetteren, Belgium

NOTE : In the course of 2003, the daughter companies ExtraFilm Austria, ExtraFilm Europe, ORC Europe and Omninet have entered the consolidation circle, while Partimage has left. ExtraFilm Austria and ExtraFilm Europe can be considered as start-ups that have to develop their businesses. ORC Europe is a cash collecting office, with ExtraFilm France as major customer. Omninet started its activities in 2000 as an Internet company. To date, its activities are still relatively low-scale, with an estimated annual turnover that represents less than 1% of the consolidated group turnover. Omninet has been included in the consolidation circle only since November 2003.

Notes


B. SUBSIDIARIES EXCLUDED FROM THE CONSOLIDATION AND ASSOCIATED ENTERPRISES NOT ACCOUNTED FOR USING THE EQUITY METHODName, full adress of registered office V.A.T. - or Share in the Reason for national number capital the exclusion (in %) (2) (a-b-c-d-e) (1)

BIM NV (bankrupt) BE 413.180.111 44.00 EKwikstraat 4, 3078 Everberg, BelgiumDISTRIFOT SA (in liquidation) BE 433.054.916 33.82 EBrusselsesteenweg 319, 3090 Overijse, BelgiumF.E.E. SA BE 426.165.738 100.00 DAvenue Victor Hugo 7, 1420 Braine l’Alleud, BelgiumGEOPAR NV (in liquidation) BE 422.858.038 40.00 ERue de l’usine 1, 6010 Couillet, BelgiumKREDITFORUM A/S (3) 980333345 75.00 ABox 357, 7601 Levanger, NorwayNORDEN INKASSO A/S (3) 976762622 26.00 EPostboks 367, 7601 Levanger, NorwaySPECTOR IMMOBILIEN VERWALTUNG (3) 100.00 ALaufamholzstrasse 171, 90482 Nurnberg, GermanyVHS SA (3) BE 427.390.611 100.00 AAvenue Victor Hugo 7, 1420 Braine l’Alleud, Belgium

(1) Reason for the exclusion (Article 107 and article 157 of the Royal Decree of 30th January 2001, in execution of the Company Law Code) : A. The enterprise is of negligible importance (one enterprise or several taken together). D. The shares of the subsidiary are held exclusively with a view to future transfer. E. Associated enterprises whose inclusion in the consolidated accounts is not material for the purpose of giving a true and fair view.(2) Held in these subsidiaries by the enterprises included in the consolidation and by parties acting in their own names but on behalf of these enterprises.(3) Kreditforum and Norden Inkasso are cash collecting agencies. Historically, they operated in parallel with Scandinavian mail order activities, but no longer have

a significant role. The objective of Spector Imobilien Verwaltung, a daughter company, is to let or sell the remaining real estate of the group in Germany (the building in Dresden). VHS is a corporation formerly active in the sale of medical imaging equipment. The business and other assets of VHS were sold over the course of 2003. It is intended that VHS will apply for liquidation in the near future.

Notes


VII. Statement of formation expenses Amounts

Net carrying values as at the end of the preceding period 53Movements of the period :· Depreciation (13)· Translation differences (2)Net carrying value at the end of the period 38of wich:· Expenses of formation or capital increase, loan issue expenses reimbursement premium and other formation costs 38

VIII. Statement of intangible assets

Research and Concessions, Goodwill development patents, expenses licences, etc.

a) Acquisition cost As at the end of the preceding period 162 790 17 750 13 117 Movements during the period : · Acquisitions, including fixed assets, own production 17 737 807 609 · Sales and disposals (19) (1 460) (62) · Transfers from one heading to another (16) 16 2 · Translation differences (2 268) (117) 3 · Other movements 6 At the end of the period 178 224 17 002 13 669c) Depreciation and amounts written down As at the end of the preceding period 117 217 14 146 9 588 Movements during the period : · Recorded 14 279 1 975 291 · Written down after sales and disposals (19) (1 461) (43) · Transfers from one heading to another (12) 15 · Translation differences (1 627) (56) 3 · Other movements 6 At the end of the period 129 838 14 625 9 839d) Net carrying value at the end of the period 48 386 2 377 3 830

Notes


IX. Statement of the tangible fixed assets Land Plant, Furniture Leasing and Other Assets under

and machinery & and other similar tangible construction buildings equipment vehicles rights assets and advance payments

a) Acquisition cost At the end of the preceding period 24 893 78 567 4 791 8 289 14 356 239 Movements during the period : · Acquisitions, including fixed

assets, own production 157 5 804 406 499 1 399 32 · Sales and disposals (4 406) (421) (42) (472) (2) · Transfers from one heading

to another 26 159 42 (229) · Translation differences (231) (130) (136) (15) (4) (1) · Other movements 36 1 024 At the end of the period 24 845 80 030 4 682 9 755 15 279 39b) Revaluation surpluses At the end of the preceding period 2 629 83 · Translation differences (52) At the end of the period 2 577 83c) Depreciations and amounts written down At the end of the preceding period 11 778 59 054 3 365 2 501 6 713 Movements during the period : · Recorded 1 091 6 925 520 484 1 507 · Written back as superfluous · Written down after sales and disposals (3 009) (347) (42) (317) · Transfers from one heading

to another 1 (3) 2 (3) · Translation differences (52) (60) (87) (10) (6) · Other movements 20 230 At the end of the period 12 818 62 927 3 453 3 163 7 894d) Net carrying value at the end of the period (a+b-c) 14 604 17 186 1 229 6 592 7 385 39 Of wich : · Land and buildings 5 536 · Plant, machinery and equipment 1 056

Notes


X. Statement of the financial fixed assets Enterprises Other

accounted for enterprises using the equity method

1. PARTICIPATING INTERESTS

a) Acquisition cost As at the end of the preceding period 8 409 Movements during the period : · Acquisitions 134

· Transfers from one heading to another (8) At the end of the period 8 535c) Amounts written down As at the end of the preceding period 8 047 Movements during the period : · Recorded 59

· Written back as superfluous (113) · Transfers from one heading to another 122

At the end of the period 8 115d) Uncalled amounts As at the end of the preceding period 5 At the end of the period 5 Net carrying value at the end of the period (a) + (b) - (c) - (d) +/- (e) 415

2. AMOUNTS RECEIVABLE

Net carrying value at the end of the preceding period 1 781 Movements during the period : · Additions 151 · Reimbursements (16) · Translation differences (5) · Other 2 Net carrying value at the end of the period 1 913

Notes


XI. Statements of consolidated reserves Amounts

At the end of the preceding period 13 221Movements during the period :· Share of the group in the consolidated income 8 124Dividends to be paid out (2 434)Transfers of revaluation plus values 35Consolidated reserves at the end of the period 18 946

XII. Statement of consolidation differences CONSOLIDATION DIFFERENCES

Positive Negative

Net carrying value at the end of the preceding period 20 691 34Movements during the period :· Write-downs (2 215)· Other movements 236Net carrying value at the end of the period 18 712 34

XIII. Statements of amounts payableA. ANALYSIS OF THE AMOUNTS ORIGINALLY PAYABLE AFTER ONE YEAR ACCORDING TO THEIR RESIDUAL TERM

Amounts payable with a residual term of Not more than Between 1 year Over 5 years 1 year and 5 years

Financial debts 17 976 43 379 3 027 3. Leasing and other similar obligations 709 2 853 2 531 4. Credit institutions 17 250 40 502 496 5. Other loans 17 24 Total 17 976 43 379 3 027

B. GUARANTEED AMOUNTS PAYABLE PERIOD Financial debts 92 584

3. Leasing and other similar obligations 4 440 4. Credit institutions 88 144 Total 92 584

Notes


XIV. Results of the period and the preceding periodA. Net turnover (heading I.A.) A1. Analysis by categories of activity and geographical markets, to be attached to the standard form, insofar as these categories

and markets, from the point of view of the organisation of the sale of goods and the provision of services falling within the ordinary activities of the consolidated enterprises differ substantially one from another (to be given for the period and the preceding period).

GEOGRAPHICAL MARKET 2003 2002 2001

Belgium 156 129 151 116 152 588 Scandinavia 36 119 37 323 35 717 France 62 249 71 236 159 016 The Netherlands 11 704 12 166 13 988 Germany 0 0 30 419 Austria 0 381 22 955 Switzerland 15 961 15 328 12 458 Ireland 160 574 890 South Africa 0 0 1 020 Hungary 30 361 29 492 27 501 Hong Kong 178 108 74 Luxembourg 52 535 51 195 47 342 Italy 9 057 9 046 8 580 Australia 2 392 2 916 2 912

Total 376 845 380 881 515 460

ANALYSIS BY CATEGORIES OF ACTIVITY 2003 2002 2001In EUR ‘000

Retail 241 159 228 293 217 345 Mail Order 115 395 120 278 114 431 Wholesale Photofinishing - - 136 665 Other activities (incl. Corporate) 20 291 32 310 47 019Total 376 845 380 881 515 460

Notes


B. Personnel and personnel charges 2003 2002 2001 (personnel in units, personnel charges in EUR ‘000)

B 1. Fully consolidated enterprises B11.a. Average number of persons employed 1 627 1 706 1 762 · Workers 613 671 687 · Employees 926 952 988 · Management personnel 37 39 46 · Others 51 44 41B11.b. Average number of persons employed 1 627 1 706 1 762 · Mail Order 325 363 406

· Retail 897 928 899 · Other activities 405 415 457

B12. Personnel charges 49 430 51 153 92 380B13. Average number of persons employed in Belgium by enterprises of the group 752 765 935B2. Proportionally consolidated enterprisesB21. Average number of persons employed 1 1 4 · Workers 3 · Employees 1 1 · Management personnel 1B22. Personnel charges 85 63 31B23. Average number of persons employed in Belgium by enterprises of the group 1 1

C. Extraordinary results Period Prec. period

1. Analysis of other extraordinary income if it involves significant amounts :

· Write-down of debt Interdiscount Holding AG 86 · Waiver Pixelnet-debt 2 975 · Recuperation current account Spector Verwaltung 3 100 · Withdrawal from the consolidation group : Spector South Africa 372. Analysis of other extraordinary charges if material : · Restructuring cost Sacap France 673 · Settlement Pixelnet 749 · Settlement sale Spie-Api + others 480 · Kodak Deal 8 447 · Restructuring cost “Renaissance” 2 403 · Closing Shops Spector Fotohandel - Merger Photo Hall - Others 990

Notes


D. Income taxes (heading 67/77) Period Preceding period

1. Difference between the tax burden in the consolidated income statement for the period and the preceding periods and the amount of tax paid or payable in respect of those periods, provided that this difference is material for the purposes of future taxation : 7 246 7 516

XV. Rights and commitments not reflected in the balance sheet Period

A.1. Amount of personal guarantees, given or irrevocably promised by the enterprises included in the consolidation, as security for third parties’ debts or commitments 56

A.2. Amount of real guarantees, given or irrevocably promised by the enterprises included in the consolidation on their own assets, as security for debts and commitments: 51 061

C. Significant litigation : • Pending objections addressed to the tax administration, for which the Board of Directors holds the opinion that no provisions should be created.

XVI. Relationships with affiliated enterprises and enterprises with participation link but not included in the consolidation AFFILIATED ENTERPRISES ENTERPRISES WITH PARTICIPATION LINK

Period Preceding Period Preceding period period

1. Financial fixed assets 13 9 402 348 · participating interests and shares 13 9 402 3482. Amounts receivable* 3 711 1 248 4 404 4 280 · after one year 2 540 3 504 3 505 · within one year 1 171 1 248 900 7754. Debts 137 · within one year 137 7. Financial results · income from current assets 186

* The amounts receivable from affiliated enterprises are mainly related to the German corporations Spector Verwaltung and Spector Immobilienverwaltung (cf. note on page 42), and to a lesser extent to STL France.The amounts receivable from enterprises with participation link, refers to an amount receivable by Spector Coordination Centre from Fotoinvest. Fotoinvest is a reference shareholder of Spector Photo Group, representing 16.04% of the shares. The loan has been granted according to market-conform conditions

Notes


XVII. Financial relations with directors or managers of the consolidating enterprise Period

A. Total amount of the remuneration granted for the account of the financial year because of their activities in the consolidating company, its subsidiary companies and associated companies, including the amount of the retirement pensions of former directors or managers on that account 555

XIX. Significant obligations PeriodSpector Photo Group has granted a put option which entails the potential obligation for Spector Photo Group to purchase shares at a total maximum price of 3,506,325. This put option has been granted to Kodak, and is related to an unpaid debt that a major French customer has towards one of the French companies that has been sold to Kodak in a share deal. As a security for this debt, this customer has deposited shares to the French company that has been transferred to Kodak. The put option is related to the number of these shares that corresponds with the portion of the above-mentioned debt that the French customer would possibly not have paid by May 2007.

XX. Shares of the consolidating enterprise in the possession of the consolidated enterprises Period

Total number of shares held by Alexander Photo: 54 526

Total number of shares held by Spector Photo Group: 54 278

Percentage of shares issued : 1,61%(Article 143 of the Royal Decree of 30th January 2001, in execution of the Company Law Code)

Notes


I. Consolidation criteria

The consolidated accounts bring together the accounts of the parent company and its subsidiaries. Intercompany balances and transactions between fully consolidated subsidiaries are eliminated. Adjustments are made only to the extent that they are material.The full consolidation follows the valuation rules of the parent company. Where the fully consolidated subsidiaries have different valuation rules, the necessary adjustments are made.Full consolidation is applied to the subsidiary companies over which Spector has exclusive control, to the extent that :• ownership is of a lasting nature;• the subsidiary is not based in a country

where the transfer of dividends is subject to restrictions;

• the activities and the accounts of the sub-sidiary correspond to those of the group.

Full consolidation includes the assets and liabilities and shareholders’ equity from the consolidated companies, as well as their income and charges.

Minority interests, including their share of profits in the financial year, are shown under a separate heading.Participating interests which exceed 20% are excluded from the consolidation due to either the temporary nature of the ownership, or the level of their capital and reserves (less than EUR 1 million), or the combination of several factors. For the same reasons, they are not accounted for using the equity method.

Modified consolidation scopeIncluded in the consolidation group :

- Omninet SARL- ORC Europe SARL- ExtraFilm Austria

Withdrawal from the consolidation group :- Partimage

Liquidation :- Spector Belgium

Change in % for enterprises consolidated using the equity method :

- Intercolor 100% : increase of + 19,6%

II. Valuation rules

A. The criteria used for valuing the various items in the consolidated annual accounts, include :

• for the calculation and adjustment of amortisation, amounts written off and provisions for liabilities and charges, as well as for revaluations (in application of Article 165 VI.a. of the Royal Decree of 30th January 2001, in execution of the Company Law Code);

• for the bases of conversion of amounts which are or originally were expressed in another currency than that in which the consolidated annual accounts are drawn up and of the accounts of subsidiary companies and of associated companies under foreign law (in application of Article 165 VI.b. of the Royal Decree of 30th January 2001, in execution of the Company Law Code).

In principle, each asset is valued at acquisition cost, and is included in the balance sheet at

that amount, less any relevant amortisation and write-offs.

Formation expensesThis heading primarily includes expenses associated with the issue of loans and expenses associated with major acquisitions which are depreciated straight-line at a rate of 20%.

Intangible fixed assetsIntangible components are amortised over their useful economic life. For prospecting and marketing expenses, this useful economic life is defined using the “life time value” calculation. This leads to following depreciation rate :• year 1: 35%• year 2: 25%• year 3: 15%• year 4: 10%

In principle, the residual value (15%) remains activated.

The depreciation starts in the month in which the marketing action commences. Exceptional depreciations are recorded if it appears that the “life time value” calculation results in a lower value than the total net book value of the activated prospecting costs.

Goodwill arising on consolidationGiven the durability and the long-term objectives of the participating interests, the goodwill arising on consolidation is amortised over 20 years. This period corresponds to, at least, the useful economic life of the investments involved. If for a given participating interest, the goodwill

Bases of consolidation and valuation


is of negligible significance, it can be fully amortised immediately.

Financial fixed assets1. SharesThis heading includes the shares of those companies which are not included in the consolidation or not accounted for by the equity method.The shares are booked at their purchase cost, exclusive of additional expenses, which are debited to the profit and loss account. Their values are re-appraised separately each year. The valuation is based on the net book value of the shares or of the fixed contractual value upon sale, or according to the criteria which were applied when the shares were purchased, if the participating interest was bought at a price which was not its book value.

Amounts are written off if the estimated value, calculated according to the rules stipulated above, proves to be lower than the book value and if the Board of Directors estimates that the reduction in value is of a lasting nature, as determined by the circumstances, the profitability, the estimated realisation value and the future prospects of the participating interest.

Write-offs are written back if the estimated value is higher than the book value (net) of the value reductions, and if the Board of Directors judges that the difference is of a lasting nature.

2. Amounts receivableAmounts receivable are valued at their face value or their invoice price. The Board of Directors will take a position with respect to

any necessary write-offs if the collectability is doubtful. The amounts receivable in foreign currencies were converted at the exchange rate on the balance sheet date. Exchange rate differences are included in the profit and loss account.

Tangible fixed assetsThe tangible fixed assets are valued at their acquisition value, which is the purchase price including additional expenses, their cost price or their transfer value.

The depreciation rate is straight-line, pro rata on a monthly basis, and defined as follows:• buildings: - administrative 3% - production 5% - furnishing of rented buildings 11%• installations 10% - 20%• machines 14% - 20%• minilabs 20%• office equipment 14%• vehicles: - cars 20% - trucks 33%• computer hardware 33%• computer software 20% (standard software packages are immediately recorded as expenses).

In the acquisition value of buildings is included the interest on loan capital used for financing the related assets. This occurs to the extent that it relates to the period which precedes the operational readiness of these fixed assets.

StocksStocks are valued at the lower of acquisition

value or market value. The acquisition cost is determined using the weighted average costing method.

Investments and cashIn general, these follow the same rules as those described for the financial fixed assets heading. Nevertheless, the Board of Directors will record each write-off, if the realisation value is lower than the book value, irrespective of whether it is of a lasting nature or not.

Provisions for liabilities and chargesThe Board of Directors will each year perform a full examination of the provisions made in the past to cover the liabilities and charges to which the company is exposed. The Board of Directors will deliberate on the necessity of continuing with or writing back these provisions; to this end, it will analyse the accounts of the various companies item by item, including those relating to any commitments made and it will scrutinise all data which may reflect uncovered liabilities such as litigation, etc.

The Board will determine the valuation methods appropriate for the major liabilities. The provisions for liabilities and charges are systematically established or written back and the decision for doing so may not be made dependent on the profit for the financial year.

Deferred taxes and future taxationDeferred taxes are calculated at 30%.Deferred taxes arise from timing differences between the accounting profit and the taxable profit. The major cause of such differences is the depreciation method applied to the



tangible and intangible fixed assets.Only timing differences which are anticipated to reverse within max. 7 years are considered in the deferred tax calculation. Provisions are built up for deferred taxation relating to certain exempted reserves which are exempt due to their retention within the parent company’s or the subsidiary company’s shareholders’ equity. Upon amendment of the taxation percentages, the existing provisions are recalculated, and the difference is incorporated into the result of the financial year. Subsequently, provisions will also be created for taxes to be paid on capital grants.

Translation of the financial statements of foreign subsidiaries

Financial statements in foreign currency are translated using the “closing rate method”. This implies that the income statements of the foreign consolidated companies, expressed in foreign currencies, are translated into euro at the average rate for the financial year.

The balance sheet of these consolidated companies, expressed in foreign currencies,

is translated into euro at the closing rate for the financial year. The components of the shareholders’ equity of these subsidiaries are translated at the historical rate. The difference between this historical rate and the rate at the balance sheet date gives rise to translation adjustments which are directly included in the shareholders’ equity under the heading ‘translation adjustment’.

Receivables and debts in foreign cur-rencies

All receivables and debts in foreign currencies existing at the end of the financial year are valued in the annual consolidated accounts on the basis of the exchange rate on the balance sheet date, except for specific covered amounts. These latter receivables and debts are translated on the basis of the forward rate. All translation differences with respect to the other receivables and debts in foreign currencies are included in the profit and loss account.

Capital grantsThese are valued at face value after deduction

of the deferred taxes. The capital grants received will be gradually written off at the same rate as the depreciations on the fixed assets for which those grants were given, taking into account the taxation effect.

B. Deferred taxes and tax deferrals (in EUR ‘000)

- Breakdown of item 168 of the liabilities 7 246

• deferred taxes (1) 49 • tax deferrals (2) 7 197

(1) Application of article 76 of the Royal Decree of 30 January 2001 in execution of the Company Law Code(2) Application of article 129 of the above mentioned Royal Decree



Statutory Auditors’ report on the consolidated financial statements for the year ended 31 December 2003 to the Shareholders’ Meeting of the company Spector Photo Group N.V.

In accordance with legal and regulatory requirements, we are pleased to report to you on the performance of the audit mandate which you have entrusted to us.

We have audited the consolidated financial statements for the year ended 31 December 2003, which have been prepared under the responsibility of the Board of Directors and which show a balance sheet total of EUR (000) 236,067 and a profit for the year of EUR (000) 8,124 (part of the group). With respect to the financial statements of the affiliated companies, audited by other chartered accountants, we relied on their opinion. We have also examined the consolidated director’s report.

Unqualified audit opinion on the consolidated financial statements We conducted our audit in accordance with the standards of the “Institut des Reviseurs d’Entreprises/Instituut der Bedrijfsrevisoren”. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, taking into account the legal and regulatory requirements applicable to consolidated financial statements in Belgium.

In accordance with those standards, we considered the consolidated group’s administrative and accounting organisation, as well as its internal control procedures. We have obtained all explanations and information required for our audit.

We examined, on a test basis, evidence supporting the amounts in the consolidated financial statements. We assessed the accounting principles used, the basis of consolidation and significant estimates made by the enterprise, as well as the overall presentation of the consolidated financial statements. We believe that our audit and the work performed by our colleagues who have audited affiliated companies, provide a reasonable basis for our opinion.

In our opinion, and based on the opinion of other chartered accountants regarding affiliated companies, the consolidated financial statements present fairly the company’s consolidated net worth and consolidated financial position as of 31 December 2003 and the consolidated results of its operations for the year then ended in accordance with the applicable legal and regulatory requirements, and the information given in the notes to the consolidated financial statements is properly presented.

Other certificationThe consolidated directors’ report contains the information required by law and is consistent with the consolidated financial statements.

Report

Gent, 7 April 2004.

The Committee of Statutory Auditors, PKF bedrijfsrevisoren, Grant Thornton, Lippens & Rabaey, represented by : represented by :

P. De Weerdt, J. Lippens, Statutory Auditor Statutory Auditor

The Committee of Statutory Auditors has also issued an approving statement without reservation concerning the consolidated financial statements for 2002 and 2001.

PKF BedrijfsrevisorenPotvlietlaan 62600 Antwerpen

Grant Thornton, Lippens & RabaeyLievekaai 219000 Gent

61Parent company accounts 2003Spector Photo Group

In accordance with the articles 104, 105 and 874 of the Company Law Code of 7th May 1999, this annual report includes only an abbreviated version of the parent company accounts of Spector Photo Group N.V..The annual report, the parent company accounts of Spector Photo Group N.V. and the statement of the Committee of Statutory Auditors shall be deposited with the National Bank of Belgium. These documents are likewise available at the company’s registered office.

The Committee of Statutory Auditors has issued an approving statement without reservation concerning the parent company accounts of Spector Photo Group N.V.. Also for 2001 and 2002, the Committee of Statutory Auditors has issued an approving statement without reser-vation concerning the parent company accounts.

PKF BedrijfsrevisorenPotvlietlaan 62600 Antwerpen

Grant Thornton, Lippens & RabaeyLievekaai 219000 Gent

Parent company accounts 2003

62 Parent company accounts 2003 Spector Photo Group

REPORT OF THE BOARD OF DIRECTORS ON THE STATUTORY ACCOUNTS 2003Comments on the 2003 figures

Balance sheet data as of 31 December 2003

ASSETSThe intangible fixed assets decreased from EUR 2.2 million to EUR 1.5 million through a combination of new investments, depreciations, and write-offs. This decrease relates to the write-off of the old technology platform for e-commerce and on-line photofinishing. The increase of the produced intangible fixed assets refers primarily to two new projects. These include the in-house development activities for the replacing the Web platform (mainly on behalf of the mail order organizations) and a new automated cash register system on behalf of retail entities within the group. The depreciations booked in 2003 are in line with previous years.

The tangible fixed assets have been reduced further from EUR 0.8 million to EUR 0.5 million. The regularly scheduled depreciations are only partly offset by limited investments in installations, machinery, and equipment.

Financial fixed assets increased from EUR 97.4 million to EUR 157.0 million. This increase refers to four elements. The first element is a capital increase in Photo Hall Multimedia N.V.. This capital increase took effect through a contribution in kind of shares in Hifi International and Photo Hall France. The increase also refers to the sale of all

other participations of the Photo Hall group to Photo Hall Multimedia N.V.. The third element is the acquisition by the corporation of the shares PCI B.V.B.A.. The fourth element refers to the long-term receivable that was granted to Photo Hall Multimedia N.V..

The decrease in ‘amounts receivable after one year’ refers to the transfer booking to ‘amounts receivable within one year’. These receivables mainly concern the loan granted by the corporation to DBM Color for financing the increase participation of DBM Color in Spector Coordination Centre.

According to Article 624 of the Company Law, mentioned should be made that, as of 31 December 2003, the corporation holds 54,278 of its own shares, of which 27,773 have been purchased on the stock exchange throughout 2003, for a total amount of EUR 272,956.36 (fractional value per share EUR 3.31). Alexander Photo, a subsidiary of Spector Photo Group, holds 54,526 shares in Spector Photo Group. Together they hold 108,804 own shares, which represent 1.61% of the total number of shares.

This package will be appropriated for supplying shares upon the exercise of options subscribed to in the framework of the stock option plans in favour of employees and consultants of Spector Photo Group N.V. and associated companies (cfr. page 74 of this document). These shares are valued at the exercise prices of the stock option plans,

except the shares that have been purchased at a lower price. The exercise prices for the second and the third plan amount respectively to EUR 9.69 and EUR 10.45. The package of own shares held by Spector Photo Group represents a net amount of EUR 541,631, mentioned under the heading Investments.

Under the same heading, the other investments declined from EUR 6.5 million to EUR 1.0 million. This results from the release, at the end of December 2003, of the portion of the escrow related to the wholesale photofinishing activities in France and Germany. This escrow refers to the agreement that was closed with Kodak in 2003.

LIABILITIESThe profit carried forward increases from EUR 1.6 million to EUR 60.2 million. The shareholder’s equity has consequently been proportionally strengthened and amounts to EUR 91.6 million as of the end of December 2003.

The heading provisions and deferred taxes has decreased from EUR 3.6 million to EUR 0.8 million. This is almost exclusively due to the decrease in other risks and charges, resulting from the settlement that has been concluded with the trustees of Pixelnet. There is a reversal of EUR 2.2 million and an appropriation of EUR 0.7 million in 2003 versus the provision of EUR 2.9 million that was created in 2002. Furthermore, there is a provision of EUR 0.036 million, created for

the options from the current sharer option plans, that are ‘in the money’ but that are not covered at the end of December 2003 by the purchase of own shares. It concerns a total of 17,696 options from the third stock option plan, at an exercise price of EUR 10.45, while the stock rate as of 31 December 2003 was EUR 12.50.

Debt decreased from EUR 130.8 million to EUR 114.5 million. This result is in accord with the plan to continue the reduction of financial debts in 2003. Trade debtors, debts related to taxes, remuneration and social charges, and other debts remain largely at the 2002 level.

PROFIT AND LOSS ACCOUNT 2003The operating income amounts to EUR 15.3 million versus EUR 16.9 million in 2002. This is a decrease of EUR 1.6 million. The major activities of Spector Photo Group consist of providing supporting services, mainly in the areas of management and information technology (IT). The operating income of Spector Photo Group closely mirrors the evolution of the subsidiaries to which these services are rendered.

Additional cost control measures have been applied, thus limiting the operating charges by EUR 1.1 million to a level of EUR 10.5 million. This applies especially to the IT area.

Consequently, the operating result decreases less strongly than the operating income, and arrives at EUR 4.7 million.



The financial income has dropped slightly in comparison to 2002, and now totals EUR 3.8 million.

The charges for the financial debts have decreased by EUR 1.3 million following the reduced level of outstanding debts.

In 2002, a value reduction of EUR 20.5 million was booked on the amount receivable from Spector Belgium N.V. because it was then assumed that the income from the operations of Spector Belgium would not suffice to cover its debt. Because of the liquidation of Spector Belgium N.V. in 2003, the value reduction of EUR 20.5 million was reversed and the amount of EUR 21.5 million is reflected in the accounts to be permanently lost. Other financial charges include currency exchange differences, a provision for the share option plans, and other banking costs.

The extraordinary income amounts to EUR 60.3 million versus EUR 27.4 million in 2002. It mainly concerns surplus values from the realization of fixed assets; specifically, the sale of shares in Photo Hall subsidiaries to Photo Hall Multimedia N.V.. The extraordinary

result is also positively influenced by the favourable settlement in the Pixelnet dossier, as described earlier.

Finally, this leads to a profit before taxes of EUR 61.2 million versus a loss of EUR 9.5 million in 2002. With taxes amounting to EUR 0.1 million, the result is a profit of EUR 61.1 million for the period.

APPROPRIATION OF THE RESULTThe Board of Directors proposes the following appropriation of the result:

Profit of the accounting year to be appropriated: EUR 61,110,351.89Profit carried forward from the pervious year: EUR 1,567,274.06Profit to be appropriated: EUR 62,677,625.95

Taking into account that the legal reserves amount to EUR 4,086,099.26 and hence already represents at least 10% of the share capital of EUR 22,392,361.51, the Board of Directors proposes no additions to the legal reserves.

The appropriation of the result is as follows:

Profit carried forward: EUR 60,243,574.87Compensation of the capital: EUR 2,434,051.08

Other notifications

The Board of Directors notes that the Committee of Statutory Auditors is granted an annual remuneration of EUR 31,575.00, in accordance with the decision of the Ordinary Annual Shareholder’s Meeting of 12 May 1999. In the accounting year 2003, the statutory auditors have been granted an additional remuneration of EUR 52,540.18 for activities that went beyond their mandate. These additional activities were related to the guidance of the internal working group that is preparing the implementation of IAS/IFRS. No other remunerations and advantages in kind have been granted; neither by Spector Photo Group N.V. nor by any other associated company.

Wetteren, Belgium 7 April 2004



Parent company accounts 2003 (After profit allocation)

ASSETS 31.12.2003 31.12.2002 31.12.2001

Fixed assets 159 001 100 420 122 770

I. Formation expenses II. Intangible fixed assets 1 507 2 176 2 408

III. Tangible fixed assets 476 806 1 346

A. Land and buildings 291 454 613

B. Plant, machinery and equipment 185 315 593

C. Furniture and vehicles 37 93

E. Other tangible fixed assets 47

IV. Financial fixed assets 157 018 97 438 119 016

A. Associated companies 156 812 97 285 118 852

1. Participation 104 425 94 614 116 181

2. Amounts receivable 52 387 2 671 2 671

B. Companies in wich participations have been taken 112

1. Participations 112

C. Other financial fixed assets 94 153 164

1. Shares 29 88 87

2. Amounts receivable and cash guarantees 65 65 77

Current assets 47 893 66 902 64 832

V. Amounts receivable after one year 32 188 40 193 42 847


VII. Amounts receivable within one year 13 800 19 564 15 448

A. Trade debts 3 410 7 796 11 143


VIII. Investments 1 523 6 807 5 844

A. Own shares 542 303 281

B. Other investments 981 6 504 5 563

IX. Cash at bank and in hand 230 160 67

X. Deferred charges and accrued income 152 178 626

Total assets 206 894 167 322 187 602

LIABILITIES 31.12.2003 31.12.2002 31.12.2001 Shareholders’ equity 91 642 32 967 37 772

I. Share capital 22 392 22 392 17 730

A. Called-up capital 22 392 22 392 17 730

IV. Reserves 9 006 9 007 27 160

A. Legal reserves 4 086 4 087 3 889

B. Reserves not available for distribution 542 303 371

1. In respect of own shares held 542 303 371

C. Untaxed reserves 2 616 2 616 2 616

D. Reserves available for distribution 1 762 2 000 20 284

V. Profit/loss carried forward 60 243 1 567 (7 120)

VI. Investments grants 1 1 2

Provisions for liabilities and charges 753 3 581 1 127

VII. A. Provisions for liabilities and charges 753 3 581 1 127

1. Taxes 517 406 399

4. Other liabilities and charges 236 3 175 728

B. Deferred taxes

Creditors 114 499 130 774 148 703

VIII. Amounts payable after one year 36 953 49 272 57 782

A. Financial debts 36 953 49 272 57 782

1. Subordinated loans 1 200


5. Other loans 2 574 2 269 2 258

IX. Amounts payable within one year 74 635 79 029 89 402

A. Current portion of amounts payable after one year 16 230 11 740 54

B. Financial debts 23 329 30 522 67 924


2. Other loans 1 379 13 634

C. Trade debts 2 660 2 382 7 582

1. Suppliers 2 660 2 382 7 582

E. Taxes, remuneration and social security 2 357 2 978 3 749

1. Taxes 1 941 2 493 3 267

2. Remuneration and social security 416 485 482

F. Other amounts payable 30 059 31 407 10 093

X. Accrued charges and deferred income 2 911 2 473 1 519

Total liabilities and shareholders’ equity 206 894 167 322 187 602

(in EUR 000) (in EUR 000)

65Spector Photo Group Parent company accounts 2003

INCOME STATEMENT 31.12.2003 31.12.2002 31.12.2001

I. Operating income 15 255 16 894 23 531

A. Turnover 6 100 6 382 6 896

C. Fixed assets - own construction 786

D. Other operating income 8 369 10 512 16 635

II. Operating charges (10 531) (12 124) (16 357)

B. Services and other goods 5 563 6 063 9 644

C. Remuneration, social security costs and pensions 2 684 2 809 2 752

D. Depreciation of and other amounts written off formation expenses, intangible and tangible fixed assets 1 381 1 869 2 441

E. Decrease in amounts written off stocks, contracts in progress and trade debts 11 (845) 771

G. Other operating charges 892 2 228 749

III. Operating profit 4 724 4 770 7 174

IV. Financial income 3 767 4 018 3 331

A. Income from financial fixed assets 871 803

B. Income from current assets 3 737 3 132 2 173

C. Other financial income 30 15 355

V. Financial charges (6 770) (27 222) (8 247)

A. Interests and other debt charges 5 733 6 999 7 887

B. depreciation of current assets other than mentioned under II.E (20 762) 20 107 289

C. Other financial charges 21 799 116 71

VI. Profit/Loss on ordinary activities before income taxes 1 721 (18 434) 2 258

VII. Extraordinary income 60 330 27 360 4 502

B. Adjustments to depreciation of financial fixed assets 1 670 10 208 4 200

C. Adjustments to provisions for extraordinary liabilities and charges 2 232

D. Gain on disposal of fixed assets 56 343 14 178 302

E. Other extraordinary income 85 2 974

VIII. Extraordinary charges (830) (18 432) (13 730)

A. Extraordinary depreciation of and amounts written off formation expenses, intangible and tangible fixed assets 562 1 713

B. Amounts written off financial fixed assets 181 4 200 10 208

C. Provisions for extraordinary liabilities and charges (744) 2 448 728

D. Loss on disposal of fixed assets 10 122 46

E. Other extraordinary charges 831 1 662 1 035

IX. Profit/Loss for the period before income taxes 61 221 (9 506) (6 970)

A. Transfer from deferred taxes 5

INCOME STATEMENT 31.12.2003 31.12.2002 31.12.2001

X. Income taxes (111) 77 (163)

A. Income taxes (111) (11) (164)

B. Adjustments of income taxes and write-back of tax provisions 88 1

XI. Profit/Loss for the period 61 110 (9 429) (7 127)

XII. Transfer to exempted reserves 7

XIII. Profit/Loss for the period to be allocated 61 110 (9 429) (7 120)

APPROPRIATION ACCOUNT

A. Profit/Loss to be allocated 62 677 (16 549) (102 748)

1. Profit/Loss of the financial year 61 110 (9 429) (7 120)

2. Brought forward profit/loss of previous financial years 1 567 (7 120) (95 449)

B. Transfers from capital and reserves 18 927 95 449

1. From capital and share premium account 95 449

2. From reserves 18 927

C. Allocation to capital and reserves

3. Allocation to other reserves

D. Profit carried forward 1. Profit carried forward (60 243) (1 567)

2. Loss carried forward 7 120

F. Profit to be distributed (2 434) (811)

1. Dividends 2 434 811

(in EUR 000) (in EUR 000)

Parent company accounts 2003 (After profit allocation)


Statement of the capital (In EUR) Amounts Number of shares

A. EQUITY 1. Called up • As at the end of the preceding period 22,393,361.52 • As at the end of the period 22,393,361.52 2. Composition of the capital 2.1. Types of shares Ordinary shares without face value 22,393,361.52 6,761,253 2.2. Nominal and bearer shares Nominal 2,655,729 Bearer 4,105,524C. OWN SHARES HELD BY • the company itself 541,631 54,278 • its subsidiaries 526,667 54,526

E. AUTHORISED, UNISSUED CAPITAL 17,729,525.41



G. STRUCTURE OF THE SHAREHOLDERSHIP OF THE ENTERPRISE AT THE END OF THE PERIOD

Holders of at least 5% of the shares Most recent Number % of totalof Spector Photo Group announcement of shares shares

A. STICHTING ADMINISTRATIEKANTOOR 16/12/2002 5,405 0.08%

CONSORTIUM EX-IPG Houtkopersstraat 3, NL-3334 KD Zwijndrecht

B. ALEXANDER PHOTO S.A. 16/12/2002 54,326 0.80% Boulevard Royal 11, L-2449 LuxembourgC. FOTOINVEST C.V.B.A. 16/12/2002 1,084,359 16.04% Kwatrechtsteenweg 160, 9230 WetterenD. PARTIMAGE C.V.A. 16/12/2002 84,044 1.24% Kwatrechtsteenweg 160, 9230 WetterenE. SPECTOR BELGIUM N.V. 16/12/2002 200 0.00% Kwatrechtsteenweg 160, 9230 WetterenF. CONSORTIUM VIT N.V., LUTHERICK N.V. and MERCURIUS INVEST N.V. 19/7/2002 986,059 14.58% p/a Walle 113, 2500 Kortrijk - VIT N.V. 379,777 5.62% - LUTHERICK N.V. 558,348 8.26% - MERCURIUS INVEST N.V. 47,934 0.71%G. MERCATOR BANK & VERZEKERINGEN N.V. 19/7/2002 537,169 7.94% Kortrijksesteenweg 302, 9000 GentH. SPECTOR PHOTO GROUP N.V. 16/12/2002 26,505 0.39%

NOTES : A, B, C, D, E and H are associated and represent together 1 254 839 shares. B and E are daughter companies of Spector Photo Group N.V.. Per 31st December 2003, the 200 shares held by Spector Belgium N.V. (E) have been transferred to Alexander Photo S.A.. Spector Belgium N.V. has been liquidated per 30th December 2003.

Total number of shares issued : 6 761 253

In the course of the accounting year 2003, the 5 405 shares that were held by the ‘Stiching Ad-ministratiekantoor Consortium ex-IPG’ have been distributed to its certificate holders.

For the number of own shares held by Spector Photo Group per 31st December 2003, reference is made to page 35 of this document.



PRINCIPLES

The valuation rules are determined in accordance with the rules laid down in chapter II of title II of the Royal Decree of 30th January 2001, in execution of the Company Law Code.

With respect to the true and fair view, no exceptions to the above valuation rules are necessary.The valuation rules have not changed compared with last year’s, except for depreciation of tangible fixed assets (see below).

The profit and loss account is not in any major way affected by income and expenses attributable to any other financial year.

Finally, the figures for the previous financial years are comparable.

SPECIAL RULES

I. ASSETS

1. Formation expensesThe recording of formation expenses and running-in expenses as assets is done within the legal bounds and to the extent that their future profitability is given a positive appraisal.In principle, these expenses are written off over a five-year period using the straight-line method. The issue costs related to the bond loan are written off for 100%.

2. Intangible fixed assetsThe intangible fixed assets are valued at their acquisition cost.They are written off using the straight-line method at 20%.

3. Tangible fixed assetsThe tangible fixed assets are valued at their acquisition cost, i.e. the purchase price (including additional costs), their cost price or their value ascribed.

The depreciation is calculated on the basis of the following percentages :

• buildings and constructions 5 to 7%• revalued buildings and constructions 5 to 7%• plant, equipment and furniture 10-25%• rolling stock 20%• minilabs 1/3 per year• machinery 20 to 25%• computers 20 to 25%The depreciation is calculated according to the straight-line and/or declining balance method. In the first accounting year during wich the assets have been acquired, depreciations are being made “pro rata temporis”. The modification of the depreciation rules in 2003 has had a positive effect on the result before taxes, for an amount of EUR 88,919.32.

4. Financial fixed assetsThe shares are recorded at their purchase price, exclusive of additional costs, which are charged to the profit and loss account. Their value is re-appraised each year. The appraisal

is done by means of the net accounting value, or the estimated contractual value when sold, or by means of the criteria which were applied when acquiring the shares, if the participation was bought at a price which was not its book value.Amounts written off are recorded if the valuation, calculated in accordance with the rules stipulated above, turns out to be lower than the book value and if the Board of Directors judges the amounts written off to be of a lasting nature, which can be justified by the position, the earning power, the estimated realization value and the prospects of the participation.Amounts written off can be adjusted if the appraised value exceeds the book value which took account of amounts written off, and if the Board of Directors judges the difference to be of a lasting nature.

5. Amounts receivable within one yearThese amounts receivable are valued at their nominal value.Amounts receivable in foreign currencies are translated at the day’s rate. The results of this translation shall be recorded in the annual accounts under caption V.c., “Other Financial Charges and Financial Income”.

The Board of Directors shall take a position with respect to any decreases in value deemed necessary.

The VAT involved shall be retained on the assets and is only recorded in the profit and loss account if it turns out to be

Summary of the bases of valuation


irrecoverable.

Write-downs are always recorded for individual amounts receivable; this also applies to any adjustments to amounts written down.

6. Investments and short-term investmentsIn general, the same rules apply as those under the caption “Financial fixed assets”. Nevertheless, the Board of Directors shall record any decrease in value, irrespective of whether it is lasting or not.

7. Deferred charges and accrued incomeThe deferred charges cover the part of costs which have been incurred during the current financial year but relate to the next financial year, and the accrued income, i.e. the part of the income which will only be received in the course of the following financial year but which concerns the current financial year.

II. LIABILITIES AND SHAREHOLDERS’ EQUITY

1. Share capitalThis is the nominal value of the issued share capital.

2. Investment grantsThe investment grants are gradually reversed, at the same rate as the amounts written off the fixed assets for which the subsidies were granted, taking account of the taxation effect.

3. LiabilitiesAll liabilities are recorded at their face value.Liabilities in foreign currencies are translated at the official rate on the balance sheet date.

4. Provisions for liabilities and chargesThe Board of Directors shall each year proceed to a full examination of the provisions made in the past to cover the risks and costs to which the company is exposed. The Board of Directors shall deliberate on the necessity of continuing or reducing these provisions; to this end, it shall analyze the

accounts item per item, and it shall scrutinize all data which may lead to risks not provided for, such as litigation.The Board shall determine the valuation methods appropriate to the major risks. The provisions for risks and costs shall be made or reduced systematically, and the decision for doing so shall not be dependent on the result of the financial year.

5. Accruals and deferred incomeAccruals cover the pro rata of costs which will only be paid in a subsequent financial year but which concern the current financial year. These costs are stated at their nominal value.Deferred income covers the part of the income which was received in the course of the current or previous financial year but which concerns a subsequent financial year.

Statement in respect of the consolidated annual accounts:The consolidated annual accounts and a consolidated annual report shall be drawn up in application of the Royal Decree of 30th January 2001.

Summary of the bases of valuation


I. GENERAL FACTS ABOUT THE COM-PANY

1.1. IdentityThe name of the company is ‘Spector Photo Group N.V.’, or ‘Spector’ for short. Its registered office is at Kwatrechtsteenweg 160, B-9230 Wetteren, Belgium.

1.2. Incorporation and duration Spector was incorporated for an indefinite period of time on 23 December 1964 under the name ‘DBM Color N.V.’ by the execution of a deed before Notary Luc Verstraeten of Assenede, and published in the appendices to the Belgian Official Gazette of 15 January 1965. The Articles of Association were last amended by a deed executed before Notary Jan Vander Bracht on 24 November 2003, and published in the appendices to the Belgian Official Gazette of 10th December 2003.

1.3. Legal formSpector was formed as a public limited company under Belgian law.

1.4. Purpose of the companyThe purpose of the company is described in Article 3 of the Articles of Association as follows:a) The manufacture, import, purchase, sale,

delivery, rental, leasing, and storage of all products, materials, and equipment for registration and reproduction of images, signals, and audio in the field of electron-ics, informatics, multimedia, audiovisual media, telecommunication, office equip-ment, photography, photoengraving, film,

and software, as well as their accessories and auxiliary services and related items;

b) The purchase, production, exploitation, and development of each image brand, word brand, and patent that may or may not be related to the above-mentioned activities and granting licenses;

c) The purchase, sale, refurbishment, rental, sub-rental, finance rental, leasing, conces-sion, and exploitation under all possible forms, of all movables and immovable goods and machinery, equipment, mate-rial, commercial vehicles, and passenger vehicles that are related to the activities of the company;

d) The investment, management, and exploi-tation of property and assets;

e) The formation of, and the cooperation with, companies and undertakings, the acquisition and management of participa-tions or sharers in companies and under-takings of which the purpose is similar or related to the purpose as specified above or is of such a kind that it stimulates and promotes the fulfilment of that purpose, and in financial companies; the financ-ing of such companies and undertak-ings through giving loans, securities, or through any other form; the participation as member of the board of directors or any other similar body to the direction and through assuming a function of trus-tee in bankruptcy in the above-mentioned companies;

f) The execution of all works, studies, and management services of administrative, technical, commercial, and financial nature, on account of the companies of which it

is shareholder or on account of third par-ties.

The company is entitled, in Belgium as well as abroad, on its own account or on the account of third parties, to perform all industrial, trade, and financial transactions that can directly or indirectly expand or promote its venture.

1.5. RegisterSpector is entered in the commercial register at Dendermonde, Belgium under the number 24.107. Its value added tax identification number is BE 405.706.755, and enrolled at the ‘Kruispuntbank voor Ondernemingen’ under the number O 405.706.755.

II. GENERAL FACTS ABOUT THE CAPITAL

2.1. Share capital issuedOn 31 December 2002, Spector’s nominal and paid up capital was EUR 22,393,361.52, represented by 6,761,253 company shares with no face value, fully paid up. In addition, there were 2,016,345 VVPR strips which grant the right to reduced withholding tax on dividends, of 15% instead of 25%. To be able to benefit from this advantage, shareholders must surrender the coupon of their share at the same time as the coupon of their VVPR strip to the paying institution before 30 November of the year in which the dividend was granted.

General information on Spector Photo Group


2.2. Authorized capital, convertible bonds

Article 34 of the Articles of Association provides for, among other things, the power of the Board of Directors to increase the capital one or more times in the amount of EUR 17,729 525,41 over a period of five (5) years from the date of publication in the Belgian Official Gazette of the amendment to the Articles of Association of 8 May 2002 (1 June 2002): ‘The Board of Directors is authorized, within a period of five (5) years from the announcement of the resolution of the General Meeting of 8 May 2002 in the appendices to the Belgian Official Gazette, and within the statutory limits, to increase the nominal capital one or more times, either by the introduction of cash or of non-cash equivalents, as well as by the incorporation of reserves and/or of issue premiums, with or without the issue of new company shares, convertible bonds, bonds with warrants, or warrants linked with another security or otherwise, all of this in the amount of a maximum lump sum of EUR 17,729,525.41. This ceiling of EUR 17,729,525.41 applies with regard to the issue of bonds convertible into shares, bonds with warrants or warrants linked with another security or otherwise, to the amount of the capital increases which could arise from the conversion of the bonds or from the exercise of the warrants. Based on a decision taken in accordance with the provisions of Article 560 of the Belgian Companies Act) of the General Meeting hereby authorizes the Board of Directors to change the respective rights of the existing types of shares or securities,

which may or may not represent the capital, in the framework of issuing securities in the permitted capital. This authorization is valid to the extent that is in accordance with the relevant regulations. Under no circumstances, shall the Board of Directors utilize this authorization in a way that would aim at, or result in, an infringement of the rights that are inherent to the existing shares). The Board of Directors is expressly authorized, within three (3) years from the announcement of the resolution of the General Meeting of 8 May 2002 in the appendices to the Belgian Official Gazette, to use the powers granted by today’s resolution to increase the capital, in those cases and under the conditions and within the limitations of Article 607 of the Belgian Companies Act. The Board of Directors shall determine the dates and the conditions of the capital increases which it orders in application of the above paragraphs, including the possible payment of issue premiums. It shall set the conditions for a bond loan it decides on in consequence of the above paragraphs. When the above paragraphs are applied, the Board of Directors shall decide in accordance with Article 592 and the Belgian Companies Act the period and the other conditions for the exercising of preferential rights by the shareholders if the law grants it this right. It can also, in accordance with the same Article 592 and the following, restrict or abolish the preferential right of the shareholders, in the interest of the company and under the conditions laid down by law, in favour of one or more specific persons selected by the Board, irrespective of whether these persons are members of the staff of the company or

of its subsidiaries. If an issue premium is paid in consequence of today’s decision, this shall be transferred by law to a reserve account entitled ‘issue premiums’, which can only be used under the conditions required for a reduction of capital. However, the premium can be incorporated into the nominal capital at any time; this decision may be made by the Board of Directors in accordance with the first paragraph.

2.3. Profit-sharing certificatesNone

2.4. Conditions for changes in the capital

Statutory conditions

2.5. Actionsa) 08 November 1991 (published in Belgian

Official Gazette 29 November 1991) Capital increase in the context of the stock option plan, by introduction of cash in the value of BEF 2,872,620 and the creation of 23,609 new shares. As a consequence, the nominal capital became BEF 1,016,633,457, represented by 1,425,510 shares, of which 205,140 were AFV shares.

b) 05 June 1991 (published in Belgian Official Gazette 27 June 1992) Capital increase by the introduction of cash to the value of BEF 117,166,543 BEF by the creation of 68,921 new shares. As a consequence, the capital became BEF 1,133,800,000 represented by 1,494,431 shares including 205,140 AFV shares.

c) 29 December 1992 (published in Belgian



Official Gazette 23 January 1993) Capital increase in the context of the stock op-tion plan by introduction of cash to the value of BEF 3,569,693 by the creation of 29,907 new shares. As a consequence, the capital became BEF 1,137,369,693 represented by 1,524,338 shares including 205,140 AFV shares.

d) 09 July 1993 (published in Belgian Official Gazette 03 July 1993) Capital increase in the context of the stock option plan by introduction of cash to the value of BEF 1,497,581 by the creation of 6,809 new shares. As a consequence, the nominal capital became BEF 1,138,867,274 represented by 1,531,147 shares including 205,140 AFV shares.

e) Conversion of shares (published in Belgian Official Gazette of 02 October 1993). In the light of the merger with Prominvest which was to take place on 29 October 1993, the Extraordinary General Meeting of 07 September 1993 decided to convert all 1,531,147 existing Spector shares into 2,703,317 new shares, with every existing share entitling the holder to 1.76555 new shares. As a consequence, the nominal capital was represented by 2,703,317 new shares, including 362,185 AFV shares. This conversion was carried out in order to obtain a swap ratio of one Spector share for one Prominvest share. After this transaction, 96% of the Spector shares were owned by Prominvest.

f) 29 October 1993 (published in Belgian Official Gazette 23 November 1993) Merger through takeover of Prominvest N.V. : in the merger, Prominvest’s assets

were added to Spector’s assets. Spector’s nominal capital was thus increased to BEF 2,265,805,017 by the creation of 2,675,000 new shares so that the capital was represented by 5,378,317 shares. After that, the capital was increased by the incorporation of revaluation surpluses and issue premiums (BEF 341,690 111 and BEF 1,406,194,933 respectively), in each case without the issue of new shares, to an amount of BEF 4,013,690,061. Imme-diately after these transactions, the capital was reduced by BEF 3,050,082,500, and 2,596,810 shares owned by Spec-tor, including all the AFV shares, were destroyed. Thus, Spector’s capital was BEF 963,607,561 after the merger, represented by 2,781,507 shares.

g) 15 February 1994 (published in Belgian Official Gazette 15 March 1994) Capital increase by the exercise of warrants: fol-lowing the exercising of the warrants, the capital was increased to BEF 1,488,390,561 represented by 3,306,290 shares includ-ing 524,783 VVPR shares.

h) 10 May 1995 (published in Belgian Official Gazette 03 June 1995) Capital increase under deferred conditions in the amount of the number of shares subscribed to on the basis of warrants multiplied by the ac-counting par value of the company shares in existence at the time the warrants were exercised. The maximum number of shares to be created is 826,572 VVPR shares.

i) 04 October 1996: The ordinary and the VVPR shares are made equivalent by the granting of the VVPR strip. As a consequence, 524,783 VVPR strips are

created and the capital is represented by 3,306,290 ordinary shares.

j) 05 October 1996 (published in Belgian Official Gazette 29 October 1996) Capital increase by the exercise of 14,658 war-rants, subscription at par, i.e., BEF 450 per share, plus payment of an issue premium of BEF 1,125 per share, as a result of which 14,658 new ordinary shares and the same number of VVPR strips, were created. As a consequence, the capital was increased by BEF 6,596,100 to BEF 1,496,986,661, represented by 3,320,948 ordinary shares, and there are 539,441 VVPR strips in circulation.

k) 08 November 1996 (published in Belgian Official Gazette 03 December 1996): Capital increase in the context of the authorized capital by the introduction of cash in the value of BEF 2,159,176,311, i.e., BEF 664,189,650 in capital plus an issue premium of BEF 2,088,507,455, by the creation of 1,475,977 new ordinary shares and the same number of VVPR strips. As a consequence, the capital became BEF 2,159,176,311 represented by 4,796,925 shares, and there are 2,015,418 VVPR strips in circulation.

l) 13 May 1998 (published in Belgian Official Gazette of 06 June 1998): (i) Capital increase by incorporation of share premi-ums in the amount of BEF 2,104,997,705, with no creation of new shares. As a consequence of this the capital amounts to BEF 4,264,174,016 represented by 4,796,925 shares, with 2,015,418 VVPR strips in circulation. (ii) Issue of 600,000 transferable warrants in name, without



preferential right in favour of Fotoinvest C.V.B.A. or its legal successors. Each warrant entitles subscription to one (1) new share in the company at a price (per share) equal to the average closing prices of the Spector share during the sixty (60) exchange days preceding the exercise date, with a minimum equal to the average exchange price during thirty (30) days preceding the date of issue. The warrants may be exercised at any time, separately or jointly, during a period of five (5) years to be calculated from the date of issue, (i) from the notification by the Banking and Finance Commission of a public takeover bid on the shares of the company, or (ii) from the time that a control announcement is made to the Banking and Finance Commission and/or the company gains knowledge of one or more persons acting in mutual agreement to acquire 20% or more of the company’s securities bearing a voting entitlement, or (iii) from the moment that the price of the company’s shares on the Brussels Stock Exchange are demonstrably and physically influenced by systematic purchase orders or by ongoing rumours relating to a takeover bid on the compa-ny’s shares, consequently an approval of a capital increase, dependant and condi-tional on the exercise of aforementioned warrants, in the amount of the maximum amount, equal to the subscription rights represented by the number of warrants multiplied by the fraction value of the share at the time of the subscription.

m) 23 June 1998 (published in Belgian Official Gazette of 21 July 1998): Capital increase through exercising 115 warrants, subscrip-tion at par, being BEF 889 per share, supplemented with payment of a share premium of BEF 651 per share, through which 115 new shares were created with an equal number of VVPR strips. As a consequence of this, the capital amounts to BEF 4,264,351,116, represented by 4,797,040 shares, with 2,015,533 VVPR strips in circulation.

n) 14 June 2000 (Publication Belgian Of-ficial Gazette 06 July 2000): Capital increase via the exercise of 812 warrants, registration at par, i.e., BEF 889 per share, supplemented by a payment of a share premium of BEF 651 per share, whereby 812 new shares with as many VVPR strips were created. As a result thereof the capital amounts to BEF 4,265,601,596, represented by 4,797,852 shares with 2,016,345 VVPR strips in circulation.

o) 30 March 2001 (Publication in Belgian Official Gazette 20 April 2001): (i) Capital decrease by BEF 3,850,394,314 to bring the nominal capital from BEF 4,265,601,596 to BEF 415,207,282 by in-corporating the losses incurred in the ac-tually paid up capital without destruction of shares, with proportional reduction of the residual value of the shares, and ap-proval of the corresponding modification of Article 5 of the Articles of Association related to the level of the nominal capital; (ii) Capital increase, without preferential right, through introduction of cash for

an amount of BEF 300,000,000,- and issuing 783,046 nominative shares without indication of their nominal value; (iii) incorporation of share premiums for an amount of BEF 232,235,199 into the capital, thus resulting in an increase of the subscribed nominal capital with an amount of BEF 232,235,199 and bringing it from an amount of BEF 482,972,083 to BEF 715,207,282 without the creation of new shares; (iv) converting the sub-scribed nominal capital for an amount of BEF 715,207,282 into EUR 17,729,525.41 rounded, thus bringing the subscribed nominal capital after converting to EUR 17 729 525.41.

p) 19 July 2002 (publication Belgian Of-ficial Gazette of 15 August 2002): (i) Capital increase with an amount of EUR 3,749,778.97 thus bringing it from EUR 17,729,525.41 to EUR 31,479,304.38 through transfer in the framework of the merger through absorption of Photo Hall SA which involved the transfer of the entire patrimony of Photo Hall SA without exception nor any reserve, to Spector Photo Group – issuing 1,180,355 new shares, coupon number 11 and fol-lowing attached, without indication of the nominal value, of the same kind and offering the same rights and benefits as the existing shares – (ii) incorporation of share premiums for an amount of EUR 913,057.14 thus bringing it from EUR 21,479.88 to EUR 22,392.52 without crea-tion of new shares.



2.6. Summary actions(see table on the left) During the financial year 2003 a total number of 27,773 own shares have been acquired.

2.7. Joint controlSpector is not aware of agreements between certain shareholders through which a joint policy is conducted with regard to Spector.

2.8. Group structureSee annual report.

2.9. Own shares held by the companySee notes to the company’s annual accounts.

2.10. Share option plan On 26 November 1999 the Board of Directors decided unanimously to introduce a share option plan in favour of employees and consultants of Spector Photo Group NV and associated enterprises (in the sense of Chapter IV Part 1, 4a of the Annex to the Royal Decree of 08 October 1976 concerning companies’ annual accounts). The free offer of the options will be regarded as a benefit of all kinds which is taxable as remuneration paid to the employees. This represents a tax-effective payment method, in view of the set valuation of this benefit as laid down in the Law of 26 March 1999 concerning the Belgian Action Plan for Employment.

The chart on the right indicates the exercise price, the number of options offered, the number of options accepted or still valid/outstanding that have been offered in three portions in execution of the plan.

Following the Law of 24 December 2002, the beneficiaries of the share option plan have been proposed to agree with a prolongation of the exercise periods with an additional three (3) years. This proposal has been approved in the mean time.

Upon exercise of these options, the company shall first utilize the own shares held in portfolio (included under the heading of investments). In second instance, the remaining shares to be delivered will be purchased by the company.

As of the end 2003, a provision of EUR 36 (000) has been created for outstanding stock options ‘in the money’ that are not covered by the shares purchased.

III. ADDITIONAL INFORMATION

3.1. Composition of Board of DirectorsThe Extraordinary General Meeting of 13 May 1998 has granted an exclusive right to Fotoinvest C.V.B.A., or its legal successors, to present candidates for the majority of the members of the Board of Directors, to be appointed by the General Shareholders’ Meeting, insofar as Fotoinvest C.V.B.A. or its legal successors, together with all persons who Fotoinvest C.V.B.A. or its legal successors control directly or indirectly (in the sense of article 5 and further of the Company Law Code), own at least 25.1% of the outstanding shares in the company both at the time of putting forward the list of candidate directors and at the time of the General Meeting appointing them. As long as this condition is complied with on account of Fotoinvest C.V.B.A. or its legal successors, the General Meeting shall be bound to appoint the majority of the directors from the list of candidates Fotoinvest C.V.B.A.

number of shares capital

1964 ...............................200 ........... 1,000,000 BEF1966 ................................400 ..........2,000,000 BEF1970 ...............................800 ..........4,000,000 BEF1976 ................................1,124 ..........8,000,000 BEF1983 ..............................1,904 ...........13,550,480 BEF1987 ....................... 500,752 ..........50,864,428 BEF1988 .......................699,500 ......180,000,000 BEF1989 .........................791,402 .....383,000,000 BEF1990 ...................... 1,401,901 ...... 1,013,760,837 BEF1991 ........................1,425,510 ...... 1,016,633,457 BEF1992 ...................... 1,524,338 ....... 1,137,369,693 BEF1993 ......................2,781,507 .........963,607,561 BEF1994 .................. 3,306,290 ...... 1,488,390,561 BEF1996 .................... 4,796,925 ..........2,159,176,311 BEF1998 ...................4,797,040 ........4,264,351,116 BEF2000 ..................4,797,852 .....4,265,601,596 BEF2001 ................... 5,580,898 .... 17,729,525,41 EUR2002 ...................6,761,253 ... 22,392,361,52 EUR

SHARE OPTION PLANYear of offer per portion 1999 2001 2002Exercise price EUR 37.16 EUR 9.69 EUR 10.45Number of options offered 52,000 82,500 67,500Number of outstanding/Accepted options 29,550 65,250 61,250Initial exercise period 04/2003 04/2005 04/2006 04/2004 04/2006 04/2007 12/2004 12/2006 12/2007Additional exercise periods in accordance 04/2006 04/2008 04/2009with the law of 24 December 2002 04/2007 04/2009 04/2010 12/2007 12/2009 12/2010

Summary actions



or its legal successors put forward for this purpose, in accordance with the previous paragraph. This arrangement can no longer be enforced to date.

3.2. General Meeting and conditions for admission

The Annual General Meeting takes place on the second Wednesday of the month of May at 2.00 p.m.

The right to attend the General Meeting is only granted either on the grounds of entry of the shareholders in the register of the registered shares or bonds or warrants of the company and upon informing the Board of Directors by letter, telegram, telex, facsimile or in other written form of their intention to attend the meeting, unless otherwise stipulated in the invitation; or on the grounds

of the deposit of a certificate drawn up by the holder of the global certificate or by the financial intermediary where the share-, bond-, or warrant holder holds his or her shares, bonds, or warrants in a securities account, which states the non-availability of the shares, bonds, or warrants concerned up to the date of the General Meeting at the locations and at the time stated in the letter of invitation; or on the grounds of the deposit of bearer shares or bonds or warrants at the registered office of the company, unless otherwise stipulated in the invitation; or on the grounds of the deposit of a certificate drawn up by the recognized account holder or by the payment institution stating that dematerialized shares or bonds or warrants will not be available up to the date of the General Meeting at the locations stated in the letter of invitation. This must be done no less than six working days

before the date set for the General Meeting. All of the above is subject to later changes in the relevant legislation.

Relations between the Board of Directors and the associated enterprises

Except for the companies mentioned below, Spector Photo Group holds –directly and/or indirectly- a minimum àof 95% of the shares: FLT (Fotolabore Tagliabue) and ExtraFilm Australia (for a complete overview including the exact participations: see also page 45-46).

Management of the business In accordance to article 19 of the Articles of association, the authority for day-to-day management is delegated to the Managing Director.



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