Consolidated annual results Financial year 2005

1. Summary

The consolidated turnover increased significantly by 13.8 % to EUR 445 million in 2005. This increase is mainly the result of the 100 % integration of the Ondulys group in the consolidation as per 31.12.2005.

The total volume of recycled paper produced by the group in 2005 increased by 3 % to 425,000 tonnes. The volume of corrugated cardboard increased by 6.4 % to 298,000 tonnes.

The operational cash flow (EBITDA) fell 23 % to EUR 42 million, compared to EUR 54.7 million in 2004, which represents a margin of 9 % compared to the 14 % of the previous financial year.

These business results must be interpreted in the context of the unfavourable economic circumstances the paper and cardboard packaging sector have encountered in 2005. The modest profit margins are a consequence of the increase in the costs related to raw material and energy, which could not be fully passed through to the sales prices in a market characterised by overcapacity, both in the raw material sector (paper), and in the finished product sector (packaging material).

3. Notes

General:

All listed companies are required to publish their annual results for the 2005 financial year in accordance with the “International Financial Reporting Standards” (IFRS). Since the Board of Directors of the VPK Packaging Group had already drawn up its figures for the 2004 financial year in accordance with the IFRS standards, the quantitative information concerning the impact of the switch to IFRS standards was already made available in April 2004. It was thus not necessary to rework the figures for 2004.

a) Turnover:

In 2005, the turnover increased by 13.8% to EUR 444.8 million.

b) Investments:

In 2005, a total of EUR 52.1 million was invested in intangible and tangible assets compared to 29.1 million in 2004. The intangible investments (EUR 1 million) were mainly concentrated on the further implementation of the SAP ERP system. The investments in tangible fixed assets related mainly to the corrugated cardboard plants in Selby (UK) and Wrzesnia (Poland).

c) Financial result:

The financial result for 2005 is EUR -1.1 million compared to -0.3 million in 2004, because of the increased debt due to investment financing. Shareholders’ equity (before distribution of profit) rose by 3.1% to EUR 223.9 million, representing 50.1% of total assets. The gearing ratio (ratio of net financial debt /shareholder’s equity) is 27.2 %.

d) Dividend proposal:

Considering the results for 2005, the Board of Directors will propose, at the Annual General Meeting of 26 May 2006, to maintain the gross dividend at last year’s level, i.e. EUR 0.51 gross per share.

Auditor’s report:

The statutory auditor, Grant Thornton, Lippens & Rabaey BVCV, Belgian Member Firm of Grant Thornton International, represented by Mr Stefaan Rabaey, has confirmed that its audit, which has been fundamentally completed, has not identified any significant correction that must be incorporated into the accounting information included in the press release.

4. Comments on the main activities

General:

The past year 2005 has been a difficult year for the paper and cardboard packaging industry in Europe. Demand has been low in most economic regions. In most major European countries growth has been quite low, with even a drop off in the UK. In the context of this recession, overcapacity was observed in paper production, since significant new production capacities were deployed without the older, less efficient production units being dismantled.
The combination of low demand and the deployment of more efficient production capacities resulted in a significant drop in paper prices, reaching a low point in the third quarter. In turn, this trend resulted in a pressure on the prices of corrugated cardboard products
The drop in price for paper and corrugated cardboard, combined with higher production costs, especially energy-related costs (EUR 4.5 million more than in 2004), generated fierce competition, with a substantial drop in profit margins as a consequence. However, the European economy started to show signs of recovery at the beginning of the last quarter of 2005. There has been a steady increase in demand, and in order to compensate the strong increase in production costs, price increases for paper were announced and also partly implemented towards the end of the year.

Activities:

a) Paper and recycled paper:
In 2005 the production at Oudegem Papier N.V. has gone up to 357,000 tonnes, as compared with 343,000 tonnes in 2004. The production at Rigid Paper Ltd was more or less the same as last year, i.e. 70.000 tonnes.
Paper prices at the end of the third quarter were under pressure because of the overcapacity on the production market.

b) Packaging:
The sales of corrugated cardboard progressed significantly with a 6.4 % growth in volume. This is, among others, the result of the start of the new production branch in Selby (UK) and of a new processing line in Oudegem (Belgium). In December, the new Polish cardboard machine was successfully put into operation in Wrzesnia.

The solid cardboard division saw a 2% drop in its sales volume.
The European consolidation of the tubewinding division was developed further. Ecotube’s activities were integrated in Alltube.

c) Trade and services:
The specialised trade activities of VPK Packaging Group also suffered from the pressure on their margins, but once again succeeded in playing their leading role as an ideal logistics partner.

5. Outlook

In the fourth quarter of 2005, price increases were announced in an effort to offset raw material and energy prices. These price increases were announced at the end of the year, but there was no immediate positive impact on the results, since the production costs were still increasing. However, the consolidation trend in the paper industry and the increasing demand on the market are giving rise to more favourable economic market conditions. This fundamental improvement in market conditions will allow producers to apply new price increases in February and March 2006. Paper prices will have a total increase of 80 € per tonne.
The production of corrugated cardboard in Eastern Europe has risen constantly over the year 2005. VPK Packaging Group will reinforce its presence there.

Company profile

VPK Packaging Group, listed on the Euronext Brussels exchange, is a Belgian packaging group with a total of 2 paper factories, 10 corrugated cardboard plants and 1 solid cardboard processing plant in the Benelux, in France, Great Britain and Poland. It also owns 10 tube winding plants and 3 trading companies that serve as ideal logistics partners.
VPK Packaging Group has 2,600 employees in 10 European countries.

Financial calendar

March 21, 2006 : Press release and publication of the provisory results of the 2005 financial year.
March 22, 2006 : Financial analysts’ meeting 2005 annual results
May 26, 2006 : Annual General Meeting

For additional information:

Pierre MACHARIS, CEO
Luc LEDEGEN, Investor Relations
Tel.: +32 (0)52 26 12 08
E-mail: luc.ledegen@vpk.be