Consolidated results 1st half 2005

1. Salient elements

In the first six months of 2005, the consolidated operating results of VPK Packaging Group were characterised by modest profit margins as a result of the sharp rise in the costs of raw materials and above all energy, which could not be passed on in the selling prices due to persistent over-capacity both in raw materials (paper) and in finished products (packaging).

In addition, restructuring measures were implemented in the French subsidiary, Ondulys, in which VPK Packaging Group increased its holding to 95% earlier this year, in order to restore profitability.

3. Notes

General:

For the 2005 financial period, all listed companies are obliged to publish their annual figures in accordance with the “International Financial Reporting Standards” (IFRS). However, VPK Packaging Group had already drawn up its figures for the 2004 financial period in accordance with the IFRS standards. Further explanation of the annual accounts and in particular of the consequences of the application of the IFRS standards can be found on the company website (www.vpk.be).

a) Turnover:

In the first six months of 2005, the group turnover rose by 13.7% to EUR 223.9 million, compared with EUR 197 million as at 30.06.2004, thanks to the full integration of Ondulys

b) Investments:

In addition to the start-up of the new corrugated cardboard plant in Selby (UK), restructuring measures were implemented in all operating entities of the French group Ondulys.

c) Financial result:

Capital and reserves rose to EUR 220.9 million or 6.1 % compared with EUR 208.2 million as at 30.06.2004. Despite a halving of the operating profit (from EUR 14 million to EUR 7 million), the net cash flow remains at virtually the same level as last year, that is EUR 23.2 million, compared with EUR 24.4 million as at 30.06.2004.

Auditor’s report

The auditor, Grant Thornton, Lippens & Rabaey BVCV (Belgian Member Firm of Grant Thornton International), represented by Mr Stefaan Rabaey, declares that he has undertaken a limited audit of the interim consolidated situation at VPK Packaging Group as at 30 June 2005 in accordance with the recommendations of the Institute of Company Auditors in this respect.
This audit comprised primarily the analysis, comparison and discussion of the financial information supplied to us and was therefore less detailed than a complete audit intended to provide a statement on the faithfulness of the assets, the financial situation and the consolidated results at the end of the financial period. This limited audit did not bring to light any information which could give rise to significant adjustments to the interim situation.

4.2. Discussion of main activities per segment:

Paper

Paper prices remained low in the first half of 2005 as a result of over-capacity on the paper production market. A total of 214,800 tonnes were produced, which constitutes an increase in volume of 5% compared with the volume produced in the first half of the previous year (204,500 tonnes).
The paper production units in Belgium and in Great Britain operated at a loss in the second quarter.

Packaging

An increase in volume was also seen in the packaging segment: from 170,000 tonnes as at 30.06.2004 to 208,850 tonnes as at 30.06.2005, a rise of 23%. This increase is mainly due to the integration of the operating activities of Ondulys (F). Without Ondulys, volume would have increased by 5%.

The demand for packaging is closely bound to the economic cycle. The trend in Europe to shift the packaging industry to countries of central and eastern Europe is continuing. VPK is standing by the strategy developed to make the most of this trend and to develop a realistic presence in these new markets in the short and medium term.

As regards the activities of Ondulys in particular, additional efforts were made amongst other things by checking all operating units against internal output requirements on a continual basis. The restructuring measures already introduced will take effect in 2006 to bring output to an acceptable level

Trade and services

The specialised trade activities of VPK Packaging Group, focusing on a number of niche markets, continued to record good results in the first six months of 2005, primarily because VPK was able to continue to fulfil and even strengthen its leading role as the ideal logistics partner.

One element that played a significant role in shaping the results in all segments is the impact of energy costs. These costs had both a direct impact (as regards the production of paper and cardboard packaging) and an indirect impact (cost of transporting the various products). Energy costs led to additional expenses of EUR 2.3 million in the first six months and the expectation is that they will result in additional expenditure of EUR 5 million compared with last year for the year as a whole.

5. Outlook 2005 – 2006

The market for paper and cardboard packaging is saturated owing to the over-capacity that has recently appeared. This, together with high energy costs, will have a further negative impact on the second half of the year.
Rationalisation on the market is urgently needed to restore margins. The market leaders have already made an early start, and the three market leaders have recently announced that they will be restructuring their capacity in 2006. We therefore expect that the basic properties of the market will only start to have a positive impact on our activities from 2007.

In the meantime, VPK Packaging Group will continue to improve its cost efficiency by simplifying the structure of all operating departments still further and by bringing and keeping costs under control.

As regards the future, VPK Packaging Group intends to stand by its strategy of a service-oriented group that creates packaging solutions for its customers with ever higher added value, in economically prosperous regions of Europe. VPK Packaging Group will continue to focus on both internal and external growth. As regards the latter aspect, particular attention is being paid to the new EU member states.
The strong financial structure and profitability of VPK Packaging Group remain valuable assets in this context.

6. Company profile

VPK Packaging Group, listed on Euronext Brussels, is a Belgian packaging group that has two paper plants, nine corrugated cardboard plans and one solid cardboard processing plant in the Benelux, France, Great Britain and Poland. In addition, it has six wrapper plants and three trading companies that act as the ideal logistics partner.
VPK Packaging Group is a service organisation which, in addition to the product manufactured, pays a great deal of attention to the specific needs of customers under the name VPK Packaging Solutions®.
VPK Packaging Group employs 2,600 people in five countries.

7. Financial calendar

21 September 2005: Press release and publication of half-yearly results for 2005.
23 September 2005: Analysts meeting on half-yearly results for 2005.
21 March 2006: Press release and publication of provisional results for the 2005 financial period.
22 March 2006: Analysts meeting on the annual results for 2005.
26 May 2006: General meeting
19 June 2006: Dividend made payable
20 September 2006: Press release and publication of half-yearly results for 2006

For additional information:

Pierre MACHARIS, CEO VPK Packaging Group
Luc LEDEGEN, investor relations
Tel.: +32 (0)52 26 12 08
E-mail: luc.ledegen@vpk.be

6. Selected explanatory notes (cfr IAS 34)

The interim financial statements over the first half of 2005 have been made following the same accounting policies and methods of computation as those made for the previous financial years 2003 and 2004.

The acquisition of an additional 45 % of the Ondulys Group during the first half of the financial year, has affected all main items of the balance sheet.During the first half of 2005, the group has paid a gross dividend to its shareholders of 0,51 € per share, which is a 10,9 % increase compared to the previous year.There are no material events occurred after 30 June 2005 to be mentioned.