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VPK Packaging Group - Annual Report 2005 �

Table of contents

1. Key figures 4

2. Strategy & Profile 6

3. Letter to the shareholders 8

4. Annual report of the Board of Directors 12

5. VPK Packaging Solutions 16

6. Summary of activities 18

7. Highlights 2005 – Events and prospects 2006 30

8. The VPK Packaging Group’s share 32

9. Key figures per share 33

10. Management and supervision – Corporate Governance 34

11. Social report 44

12. Environmental policy 45

13. Logistics 48

Contents of f inancial summary 51

1. General information 52

2. Scope of consolidation on 31 December 2005 55

3. Consolidated balance sheet 58

4. Consolidated profit and loss account 60

5. Consolidated statement of shareholders’ equity 62

6. Consolidated cash flow statement 63

7. Accounting principles 65

8. Notes on the consolidated annual accounts 73

9. Comments to the consolidated accounts 90

10. Auditor’s report 94

11. Statutory annual accounts (Belgian GAAP - abridged version) 96

12. Motions for a decision by the annual general meeting 103

13. Financial calendar 106

14. Addresses 108

VPK Packaging

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VPK Packaging Group - Annual Report 2005� VPK Packaging Group - Annual Report 2005 5

1.2. Key f igures

Changes in the scope of the consolidation: the holding (50%) in Frano Packaging NV was sold at the end of 2004, Ecotube NV was consolidated over a full year, as against 4 months in 2004. BVBA Van Assche, since then merged with Doopa NV, was thus also included in the results for 12 months instead of 3, the Ondulys group was included 100% for 12 months with a minority interest of 5%, instead of 50% in 2004.

1) EBITDA = operating profit + depreciation + write-downs + provisions(2) EBIT = operating profit, i.e. result before financial result and tax(3) Net cash flow = net profit + depreciation + write-downs + provisions

in mio euro in mio euro Change IFRS-data 31.12.05 31.12.04 (in %)

Net turnover 444.79 390.77 13.8Operating income 454.80 397.57 14.4 Operational cash flow (EBITDA) (1) 41.98 54.96 -23.2Operational cash flow (as % of operating income) 9.23 13.76 Operating profit (EBIT) (2) 12.85 29.96 -57.1Operating profit (as % of operating income) 2.83 7.53 Net financing costs -1.13 -0.30 Result before tax 11.66 29.82 -60.9Result according to equity method - - Tax -0.69 -7.44 Profit 10.97 22.39 -51.0Share of the minority holding -0.11 Group’s share in profit 11.08 22.39 Net cash flow (3) 40.21 47.12 -14.7 Total assets 446.2 366.05 Shareholders’ equity 223.86 217.15 3.1Solvency ratio (in %) 50.13 59.32

Number of shares on 31-12 8,763,000 8,763,000Ordinary profit per share (in EUR) 1.26 2.55Net cash flow per share (in EUR) 4.59 5.38

OPERATING INCOME (in mio EUR)

NET PROFIT (in mio EUR)

NET FINANCIAL DEBT (in mio EUR)

VOLUMES

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EBITDA (in mio EUR)

SOLVENCY RATIO (in %)

EBIT (in mio EUR)

EVOLUTION OFINVESTMENTS (in mio EUR)

Recovered paper 10%Paper 43%Corrugated board + solid board 34%Tubes/cores 9%Trade 4%

1.1. Key f igures

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1 Key figures

VPK PackagingVPK Packaging

VPK Packaging

VPK Packaging Group - Annual Report 2005� VPK Packaging Group - Annual Report 2005 �

VPK Packaging Group is a rapidly growing, integrated industrial group with strong roots in the Western European market, operating in the cardboard transport packaging sector. In 2005, with 2,600 staff, we achieved a consolidated turnover of 444.79 million euros. This means an increase of 13.8% compared with 2004.

Our strong financial structure, well-thought-out investment strategy and the defensive character of our operation, combined with our desire to continue growing, are the key concepts that allow us to meet the future full of confidence.

Locally collected recycled paper is processed in our own paper mills to become new paper that in turn becomes a valuable raw material for packaging, such as corrugated cardboard, normal card-board, wrappings and corner profiles. For production it is of vital importance to take account of our customer’s most stringent specifications so that we are able to speak without reserve of high quality, service-oriented products. Putting it shortly: waste (recycled paper) becomes a raw mate-rial (paper) and paper becomes valuable packaging with a strong service slant.

Our Recycled Paper department is an important player in the Belgian and German recycled paper market. This environmentally-oriented operation guarantees the supply of part of our raw materi-als, the rest we buy outside our group.The recycled paper that does not sell within the group is sold as a raw material to outside paper mills making newsprint and magazine paper. Last year, our two sites in Roeselare and Aalst and our joint venture in Germany handled 215,000 tonnes.

Our paper department, Oudegem Papier, is a European leader specialising in the production of paper for packaging from recycled paper. In 2005, our three specialised paper-making machines produced 357,000 tonnes of corrugated paper, liner paper and wrapping cardboard. Rigid Paper, located near York in the United Kingdom, produced 70,000 tonnes of paper for the corrugated cardboard industry in 2005.

Our packaging department produces high quality service-oriented packaging and is continuously developing, creating and producing new packaging in order to provide an optimum solution to our customer’s logistics needs. At present we produce and process corrugated cardboard, normal cardboard, wrappings and corner profiles at 20 customer-oriented sites in Benelux, France, the United Kingdom, Poland, the Czech Republic and Denmark. In 2005, the total volume of packaging amounted to 413,000 tonnes.

Our Trade and Servicing department pursues a niche strategy and (especially in the Netherlands) specialises, among other things, in supplying packaging to flower and bulb exporters, the chicken and egg industry and the meat industry. In addition, this department provides rapid deliveries on call-off and supplies standard boxes in short runs. We have acquired strong positions in Benelux and France. In addition, we control the supply chain for customers in certain sectors.

Our taste for innovation, our well-thought-out investment and acquisition strategy and our dyna-mic staff guarantee that our current growth and profitability will continue.

2.2. Profi le2.1. Strategy

VPK Packaging Group is a prominent West-European packaging group. We develop and produce innovative and protective logistics packaging with maximum use of recycled fibres. Our integra-tion means we have control over the entire recycled paper chain from recycling and production to high quality printed transport packaging. Marketing and distributing this packaging to specialised niches is the last link in this integration.

Internal growth and international expansionWe are aware that internal growth is necessary even in a weak economy. Hence a substantial sum is once again being proposed for investment in 2005 in order to be able to meet our customers’ packaging requirements in an effective, flexible and competitive manner.

So far as our acquisition strategy is concerned, we will continue to keep an eye open for opportu-nities that fit in with the group’s basic activities, are suitably located geographically and can create direct value for the group by generating profits and their synergistic effect. In addition, we will be paying particular attention to the opportunities that the new EU member states offer, and in this our strong financial structure and profitability will continue to be our trump cards.

Human capitalWe undertake to continue to put our energy into creating a stimulating working atmosphere for our staff. We offer them career opportunities that enable them to exploit their entrepreneurship and creativity to the full.

Strong financial structureIn addition we will make sure that we achieve a level of profit that allows us to meet our targets by financially independent means. We wish to create continuous added value on invested capital for our shareholders and to pay them an annual return that takes into account the results of the previous financial year.

Durable businessWe attach the highest importance to ethical and ecological business, which is apparent from, among other things, our environmental policy. We regard high quality, forward looking manage-ment as a priority social requirement.

VPK Packaging GroupVPK Packaging Solutions®

2 Strategy and Profi le



� VPK Packaging Group -Annual Report 2005 �

2005 was a difficult year for the paper and cardboard packaging industry in Europe. In most major economic regions demand was slack. In addition there was relatively low growth, and in the United Kingdom there was actually a fall in the size of the market. Given this decline there arose overcapacity in paper production, because important new production facilities were brought on stream without the older and less efficient ones being run down.The combination of slack demand and the use of more efficient papermaking capacity brought about a steady decline in paper prices with the third quarter as the low point. In its turn this trend put the prices of the packaging operations under pressure.The fall in the price of paper and corrugated cardboard, combined with an increase in production costs, especially energy prices (€ 4.5 million more than in 2004), caused fierce competition with a consequential substantial drop in profit margins. However, at the beginning of the last quarter of 2005 the European eco-nomy began to show signs of recovery. The demand curve was going up and, to compensate for the greatly increased production costs, increases in paper prices were announced toward the end of the year and partly put into effect.

In 2005 our group’s consolidated turnover rose by 13.8 %, to € 445 million. This growth was mainly attribu-table to the expansion of our holding in Ondulys to 95 % and to the increase in the volumes of paper sold by 3 %, to 425,000 tonnes, and of corrugated cardboard by 6.4 %, to 298,000 tonnes.

Operational cash flow (EBITDA) fell by 23 % and amounted to € 42 million, compared with € 55 million in 2004, which represents a margin of 9 %, compared with 14 % in the previous financial year.Equity rose to € 224 million or 50 % of the total capital applied. Net financial liabilities rose to € 61 million as a result of individual investments, including the takeover of 45% of the shares in Ondulys and the start up of two new corrugated cardboard factories in Poland and the United Kingdom. Gearing rose from 8 % to 27 % in consequence, but this does not detract from VPK Packaging Group NV’s particularly strong financial structure.

In recent years the traditional industrial sectors of Western Europe, of which VPK Packaging Group forms part, have found it more and more difficult to continue further development and growth of their businesses: they are suffering from stagnating consumption and higher production costs. The government did not im-mediately take the action that ensured a favourable business environment for the future. The profit margins that are needed to make the necessary investments continued to fall to a virtually unheard of level.

VPK Packaging Group NV retains its strong financial structure, despite the investments made in what is, for it, an unfavourable economic climate. However, this does not mean that VPK Packaging Group NV is not vulnerable: the profitability of its operation needs to increase further at a rapid pace. Accordingly the group will continue to invest in machines and people, to simplify structures, to tackle new markets in emerging economies, and to force the pace in intensifying cost-cutting measures. In order not to drop back from the head of the pack in terms of competitiveness, it is necessary for us to make the new investments required quickly and efficiently, all the more so as the competition will not be standing still either. The management team is therefore being reinforced with staff who possess special skills in implementing performance proces-ses, business development and people development.

�Letter to the shareholders


VPK Packaging Group - Annual Report 200510 VPK Packaging Group -Annual Report 2005 11

VPK Packaging Group will continue to invest in offering cost efficiency and innovative packaging solutions as part of the VPK Packaging Solutions® programme. Here management of flexible supply chains with short response times for our cus-tomers is of crucial importance. This demands common efforts, systems that are fine tuned to one another and improved communication. It also requires limiting stock levels, management of the seasonal cycle and a great deal more.

In January 2006 VPK Packaging Group took an important step in expanding its cores business by taking over four produc-tion companies in Luxembourg, Poland, the Czech Republic and Norway. As a result, turnover of the cores business rose from € 45 million to € 67 million and we became the fourth-biggest player in the European cores market. This acquisition has also brought with it know-how, so that we can tap new markets with technically high-quality products with a wider geographical coverage (Scandinavia, Poland and the Czech Republic).

In Eastern Europe production of corrugated board packaging continued to grow inexorably in 2005. Competition in these markets is increasing. VPK Packaging Group will be consolidating its presence there.

In the fourth quarter of 2005, increases of 80 EUR per tonne in the price of paper were announced in an attempt to make up for the greatly increased prices of raw materials and energy. These price increases were implemented at the end of the year, but were still unable to have a favourable effect on the results, since production costs continued to rise at the same time. Nevertheless, because of the wave of consolidation in the paper industry and the rising market demand, more favou-rable market conditions have been created. This fundamental improvement in the characteristics of the market has allowed producers to make further price increases in February and March 2006. The increases in paper prices are currently also making an increase in the price of corrugated cardboard necessary.

Combined with the effect of the recent investments, external growth should lead to the group’s annual turnover topping the magic € 500 million mark in 2006.

We are convinced that we can still count on our staff. Their knowledge, talent and dynamism, combined with their loyal dedication, are enabling us to continue with the balanced development and profitable growth of VPK Packaging Group. Together we are able to take up the numerous challenges and create value for our customers, staff and shareholders.

Jean-Paul Macharis Pierre Macharis Chairman of the Board CEO and Chairman of the Executive Committee


VPK Packaging


VPK Packaging Group - Annual Report 200512 VPK Packaging Group - Annual Report 2005 1�

The auditor was awarded remuneration of 8,900 EUR (exc. VAT) for exceptional work in the fourth quarter of 2004 relating to the introduc-tion of IFRS. So far as the scope of the consolidation is concerned, there are the follo-wing changes compared with 2004• the holding (50%) in Frano Packaging NV was sold at the end of 2004• Ecotube NV was consolidated over a full year, as against 4 months in

2004• BVBA Van Assche, since then merged with Doopa, was thus also included

in the results for 12 months instead of 3• the Ondulys group was included 100% for 12 months, with a minority

interest of 5%, instead of 50% in 2004

Consolidated turnover grew by 13.8% to 444.8 million EUR. With the same scope of the consolidation, turnover would have remained stable (by 0.1%), despite an increase in sales volumes of 3% in pa-per and 6.4% in corrugated board. The average price of sterling fell slightly (- 0.5%) in comparison to its average rate in 2004. Revenue recognition (IAS 18 § 35) takes place at the time the goods are de-livered.

Energy costs were 4.5 million EUR higher than a year earlier. Added value rose by only 9.6%, which illustrates perfectly the reported pressure on margins. In addition, costs rose so that the operational cash flow fell by 23.2%, the operating profit by 57.1% and the net profit by 51%. By taking a majority interest in the Ondulys group, we also acquired control of its day-to-day management. In order to bring profi-tability to an acceptable level, we began a restructuring programme, as a result of which a total of 1.5 million EUR in one-off restructuring costs have been charged against earnings.

Equity rose to 223.9 million EUR, before distribution of profits, the-reby making up around half of the liabilities, which amounts to a fall in the solvency ratio from 59.3% to 50.1%. Assets expanded by 22% to 446.2 million EUR. Because the net cash flow this year was insuf-ficient to finance this growth, the net financial liabilities rose from 16.9 million EUR to 60.8 million EUR. The gearing and general liquidity ratio remained at very healthy levels of 27.2% and 1.88% respectively.

In 2005 the group bought 46,609 of its own shares in accordance with the rules of the articles of association and company law. On 31 Decem-ber 2005 we held a total of 302,741 own shares in portfolio (as against 256,132 on 31 December 2004). In compensation, equity was reduced by 7.7 million EUR in accordance with the IFRS standards.

ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE CONSOLIDATED ANNUAL ACCOUNTS OF VPK PACKAGING GROUP NV FOR THE 2005 FINANCIAL YEAR

Dear Shareholders,

We hereby bring you our report on the consolidated annual accounts of VPK Packaging Group NV for the 2005 financial year.

2005 will be a memorable year in the history of our group. Although earnings declined, we are able to look back with satisfaction at the practical steps taken to continue the group’s expansion. Thus we acquired the majority holding (95%) in the Ondulys group (France), opened an impressive new corrugated board factory in the United Kingdom and started up a corrugated board factory in Poland. After the end of the financial year we took four cores & edge protector companies over from the French Abzac group (one in Luxembourg, Norway, the Czech Republic and Poland) and increased our interest in Fionia (a cores & edge protector company in Denmark). The cores & edge protector business unit is one of the top five in Europe. In this way we are making a start on realising our strategy of building up an important presence in Central Europe.

The transition to International Financial Reporting Standards (IFRS), compulsory for European publicly quo-ted companies from the 2005 financial year, was made in 2004.

The last year, 2005, was a difficult one for the paper and board packaging industry in Europe. In most ma-jor economic regions demand was slack. In most of the larger countries of Europe there was relatively low growth, and the United Kingdom actually experienced a decline in the size of the market. This decline cau-sed overcapacity in paper production, because important new production facilities were brought on stream without the older and less efficient ones being shut down. The combination of slack demand and the use of more efficient papermaking capacity brought about a steady decline in paper prices with the third quarter as the low point. In turn this trend put the prices of the corrugated board operations under pressure.

The fall in the price of paper and corrugated board, combined with an increase in production costs (especially energy prices 4.5 million EUR more than in 2004), caused fierce competition with a consequential drop in profit margins. Nevertheless, at the beginning of the last quarter of 2005 the European economy began to show signs of recovery. Demand was on the increase and, to compensate for the greatly increased produc-tion costs, increases in paper prices were announced towards the end of the year and partly put into effect.As a result of the increasingly unprofitable cost base, a number of closures of divisions where recycled pa-per is produced were announced. Two market leaders merged thereby creating a sound foundation for the market throughout the whole of Europe. These recent events should lead to better prospects for the entire industry.

Following the timetable on Corporate Governance as approved by the Board of Directors of 17 March 2005, the Board approved a Corporate Governance Charter at its meeting on 15 December 2005.

In addition, the Board of Directors has decided to include its explanation of corporate governance practices for the 2005 financial year and of a number of divergences from the Code as a separate chapter in the bro-chure that will be made available to the public. This chapter will also be put on the company’s website.

� Annual report of the Board of Directors


VPK Packaging Group - Annual Report 20051� VPK Packaging Group - Annual Report 2005 15

The increased debts entailed a slightly higher financial burden. Financial earnings were in fact -1.1 million EUR, compared with -0.3 million EUR in 2004.

In the fourth quarter of 2005, increases of 80 EUR per tonne in the price of paper were announced in an attempt to make up for the greatly increased prices of raw materials and energy. These price increases were implemented at the end of the year, but were still unable to have a favourable effect on the results, since production costs continued to rise. Nevertheless, because of the reduction in the production capacity of the paper industry and the rising market demand, more favourable market conditions have been created. The increased demand has allowed producers to make further price increases in February and March 2006.

The increases in paper prices are currently also making an increase in the price of packaging materials necessary.In Eastern Europe production of packaging materials continued to rise over the course of 2005. VPK Packaging Group NV will profit – in the medium term – from its growing presence in these markets.

We wish to fulfil our ambition to grow by concentrating on both internal and external growth, in which the new EU member states are receiving our special attention. Our healthy financial structure allows us such a growth strategy and, acts as a buffer against the lower earnings with which our sector is now confronted.

In personnel policy, our training policy is now being given priority alongside safety at work. In 2006 the policy plan on training is being given further effect, jointly with some local partners, in collaboration with the Flemish Community and the European Social Fund.The structures that have been implemented to guarantee safety at work continue to bear fruit. Safety is now high on the agenda everywhere in the group, and the communication channels used are of common benefit to safety, productivity and quality.

We like to thank every member of the group’s staff for their contribution to the results.

The Board of Directors

Taking account of the 26,444 allocated but not yet exercised warrants and of the 302,741 shares held by group companies on 31 December 2005, the profit per share was also calculated on the basis of 8,486,703 shares. The key figures per share have still been calculated on the basis of the 8,763,000 shares that repre-sent the company’s entire capital.

At the end of the financial year the Board of Directors made a decision to simplify the structure of the group with the aim of improving profitability and transparency. Thus almost all holdings in VPK Services NV were concentrated in Oudegem Papier NV, and the interests in the cores & edge protector companies were brought directly under the holding company. The same was done with the holding in Rigid Group Ltd. after the end of the financial year.

Financial instruments to cover the currency and interest risks are of scarcely any significance in assessing the group’s financial position. Today only sterling is of any importance in terms of currency risk. At the end of the financial year there were no contracts for hedging currency risks. The interest risk is for the most part covered, either by taking out loans at a fixed interest rate or by entering into IRS (Interest Rate Swap) agreements, with the same effect in consequence. Thus, at the end of 2005, 88% of outstanding borro-wings were at fixed interest rates. Indeed, in the course of 2005, capitalising on the historically low interest rates, two more fixed rate loans for a total sum of 40 million EUR were taken out, partly to replace ones at a variable interest rate. To cover the credit risk, VPK Services NV has taken out a credit insurance policy for a number of subsidiaries.

52.1 million EUR was invested in intangible and tangible non-current assets. The intangible investments (1 million EUR) mainly related to the further roll-out of the SAP ERP system within the group. The investment in tangible fixed assets consisted mainly of finishing the new corrugated board factory in Selby (United King-dom), the construction of a new warehouse for finished products in Desborough (United Kingdom), the extension of the Davrain (F) production hall, the construction of a multi-purpose warehouse near the E40 in Aalst (B), construction of new offices and social facilities at the corrugated board factory in Aalst (B), the installation of a new corrugated board factory in Wrzesnia (PL), the purchase of a new high-productivity production line in the corrugated board division in Oudegem (B), the installation of a new roll storage area for semi-finished products in the corrugated board factory in Raamdonksveer (NL).

The increase in inventory by 7.2 million EUR is largely due to the complete consolidation of Ondulys and increased inventories at VPK Packaging NV (B), Rigid Containers (United Kingdom) and C.I. Holland-Almelo (Netherlands). Trade receivables rose by 17.8 million EUR: the vast majority of this due to the complete con-solidation of Ondulys. Other receivables rose by 1 million EUR. This growth is, broadly speaking, attributable to VPK Packaging NV (Belgium) in the form of reclaimable taxation and VAT.

There are no connections with shareholders or with parties related to shareholders, save for loans on market terms granted to some companies in the group by shareholders or related parties.

VPK Packaging


VPK Packaging Group - Annual Report 20051� VPK Packaging Group - Annual Report 2005 1�

The packaging sector is an industrial service industry. We do our best to collaborate with our clients on product development, service and quality.

Within the highly diversified packaging market, paper and cardboard packaging occupy a prominent position. Low weight, versatility, reliability, hygiene and cost-effectiveness make it suitable for a wide range of applications. Furthermore it is good for the environment. Paper and cardboard are in fact a renewable source material for new packaging.

Thanks to the ability to have high quality printing, packing goods in paper or cardboard offers the client definite promotional value. Very often it is the packaging that decides whether or not the consumer buys the product. On the other hand, it also offers protection during transport and along the logistics trail. With our packaging the quality of the goods remains unim-paired. This two-way creation of value is where we continue to innovate and look for new products for new applications – especially in the field of cardboard transport packaging.

We have gone from a product-oriented organisation to a service business paying great attention to the client’s particular needs in terms of supply chain optimisation, just-in-time delivery, Vendor Managed Inventories (VMI) and Collaborative Planning, Forecasting and Replenishment (CPFR). We bundle this total service to the client as the VPK Packaging Solutions® concept.

For supply chain optimisation, we have invested in Forward Logistic Integration (FLI®). By exchanging information on plan-ning and stocks we are able to optimise both the client’s stock control and our own production costs. This gives us a better match between orders, production and stocks. The result is a win-win situation for both sides: less need for working capital and storage space, greater stock turnover and reliability of delivery and less administrative rigmarole. Furthermore, every-thing is constantly evaluated and measured, so that we can make course corrections if need be.

We are also convinced that with our wide experience and successful implementations we can make the difference for our present and future clients.

5 VPK Packaging Solutions

VPK PackagingVPK PackagingVPK PackagingVPK PackagingVPK Packaging

1� VPK Packaging Group - Annual Report 2005 1�

Recycled paper and Paper

Our Paper recycling department collects paper, which is then sorted

into different qualities and sold to the recycled paper processing in-

dustry. The total processing capacity for recycled paper at our three

sites in Belgium (Roeselare, Dendermonde and Aalst) and our site

in Germany (Diedorf) is 200,000 tonnes. We sell the balance on

the open market. In 2005 recycled paper prices became stable, but

at a high level. Because of the weak economic situation and incre-

ased international demand, the volume available has fallen.

In 2005 O.K. Oudegem Kühl Recycling GmbH, a joint venture by VPK

Packaging Group NV and the major German recycling company Rolf

Kühl, also contributed to Oudegem Papier’s supplies.

In 2005 VPK Packaging Group NV

reused 463,000 tonnes of recycled paper

as a raw material for the production

of paper for packaging purposes

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Doopa NV - Roeselare (B) - Aalst (B) - Dendermonde (B)Recycling company

Doopatrans NV - Roeselare (B)Service provider

O.K. Oudegem-Kühl Recycling GmbH Diedorf (D)Recycling company

S I T E S

Recycled paper

� Summary of act ivit ies

VPK PackagingVPK PackagingVPK PackagingVPK Packaging

VPK Packaging Group - Annual Report 200520 VPK Packaging Group - Annual Report 2005 21

Recycled paper and Paper

Oudegem Papier NV and Rigid Paper Ltd. produce paper for

packaging purposes from recycled paper and cardboard. The

paper produced is partly used for our own production of cardboard

packaging and partly sold to other paper manufacturers. Oudegem

Papier’s production volume was 357,000 tonnes (compared with

342,000 tonnes in 2004), and that of Rigid Paper 70,000 tonnes.

Because of overcapacity in the market, paper prices were under

pressure. Margins fell as a result of the steep increase in raw mate-

rial prices and the cost of energy and ancillary materials.

Competitive position

Oudegem Papier NV has three highly specialised paper-making

machines with a total capacity of 360,000 tonnes at its site in

Dendermonde. Machine 1 produces raw material for normal card-

board and the wrappings industry. Machine 6 produces Testliner,

the brown inner layer of a corrugated or normal cardboard pack.

Machine 7 produces Wellenstof, the corrugated sheet in corrugated

cardboard.

In 2005 VPK Packaging Group

produced 426,000 tonnes

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Oudegem Papier NVDendermonde (B) Paper mill Capacity 360,000 tonnes

Rigid Paper Ltd. Selby (UK) Paper mill Capacity 70,000 tonnes

S I T E S

Paper



22 VPK Packaging Group - Annual Report 2005 2�

Packaging

It is made up from different kinds of paper, the middle layer of

which is given a corrugated profile. Corrugated board meets the

most diverse requirements of the market including stackability,

shock resistance, climate differences and printability. In many cases

it is the ideal choice – also because of its low cost and moderate

set-up cost. What is more, corrugated board is ideal for carrying

promotional communication.

Competitive position

We are enhancing our service to our customers by means of total

logistical packaging concepts, high quality printing and new pro-

duct developments. This total service to the customer is bundled in

the VPK Packaging Solutions® concept, which is further reinforcing

VPK Packaging Group’s position in the market.

Sites

We have ten integrated corrugated board plants in Benelux,

France, Poland and the UK. Besides these we have three corru-

gated board processing plants in France and one in Poland, where

bought-in corrugated board sheets are made into more specialised

packaging.

Corrugated Board is our most

important end product

with 313,000 tonnes in 2005


Ten corrugated board plants

VPK Packaging NV Dendermonde (B)Aalst (B)

VPK Packaging BVRaamsdonksveer (NL)

Ondulys Lille SAS - Lille (F)

Ondulys Tailleur SAS - Parijs (F)

Ondulys Andelle SASFleury-sur-Andelle (F)

Ondulys Industrie SAS- Lisieux (F)

Rigid Containers Ltd Selby (York, UK) Desborough (Northampton, UK)

VPK Polska Sp.z o.oWrzesnia (PL) Four corrugated board processing plants

Ondulys Roye - Roye (F)

Ondulys Liane - Boulogne (F)

Ondulys Gheysens - Tourcoing (F)

Ondulys Polska - Zyrardow (PL)

S I T E S

Corrugated Board


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2� VPK Packaging Group - Annual Report 2005 25

Packaging

The solid board department occupies an important place in our

group. In consultation with the customer we produce the packaging

that best meets their specific needs.

Solid board is ideal for use in moist conditions such as packaging for

poultry, meat, vegetables, foodstuffs in general and flowers. Its resi-

stance to moisture is due to the production process in which three of

four layers of paper are glued together in full sheets (water-proof).

If desired we can increase moisture resistance further by giving one

or more layers extra treatment. The high print quality with up to six

colours greatly enhances the communication qualities of the pac-

kaging.

Having our own design office means the Normal Cardboard di-

vision is able to reflect the ever-fluctuating needs of a rapidly

changing market quickly and effectively. Furthermore, our vertical

integration guarantees a considerable measure of independence

from the raw materials market, which translates itself into high

reliability of supply.

The solid board department

operates in twelve countries


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VPK Packaging NV Dendermonde (B)

S I T E S

Sol id Board




Cores and edge protectors

Parallel wound cores are used for wrapping up textiles and floor

coverings. Spiral wound cores are technically more complex and

are employed in the paper, film, textile and aluminium sectors and

in highly diverse industrial applications. Edge protectors are used in

agriculture and industry to protect products stacked on pallets.

Marketing of the top-most segment of the cores market – smooth

tubes for the foil industry, tubes with a barrier material for the food

industry and tubes provided with a soft, recyclable felt layer for the

steel industry – progressed successfully in 2005.

Our ten production divisions, with a total capacity of 90,000 tonnes,

supplied the most important markets in Europe, particularly Great

Britain, Scandinavia, Germany, France, Benelux, Poland and the

Czech Republic. In addition, the cores division in Belgian has its own

research and development team for new applications and products.

Our cores & edge protector department

produces the full spectrum

of cores and edge protectors


0

10

20

30

40

50

60

2003 2004 2005

Corex Belgium NV (formerly Alltube NV) Deerlijk (B)

Corex Depauw NV (formerly Ets. A. Depauw & Co NV)Harelbeke (B)

Corex Nederland BV (formerly C.I. Holland-Almelo BV) Wierden (NL)

Corex Luxembourg SA (formerly ABZAC Luxembourg SA)Differdange (L)

Corex France SAS (formerly Davrain SAS) Leers (F)

Corex UK (formerly Deva Cores)Mold (UK)

Corex Cesky spol.s.r.o. (formerly Cesky ABZAC spol.s.r.o.) Vyskov (CZ)

Corex Polska Sp.z o.o (formerly ABZAC Polska Sp.z o.o)Swiecie (PL)

Corex Nordic AS (formerly ABZAC Nordic AS)Hommelvyk (N)

Fionia Emballage 2003 A/SFerritslev (DK)

S I T E S

Cores and edge protectors




Trade

Twinpack BV in the Netherlands has devoted itself to packagings for

flowers, bulbs and plants. Its site in Barneveld specialises in dealing

in packaging for chickens and eggs. Twinpack is also a market leader

in packaging for the Dutch meat industry.

In France we operate through Ondulys out of Paris, Roye and Lille.

Our activities are being further streamlined in order to ensure opti-

mum service provisions for customers.

Our Trade department

is the ideal logistics partner.

It reflects our customers’ special needs

thereby creating greater added value

Twinpack BV - Barneveld (NL) - Noordwijkerhout (NL)

Ondulys Références SAS - Parijs (F)

S I T E S


VPK PackagingVPK PackagingVPK Packaging

VPK Packaging Group - Annual Report 2005�0 VPK Packaging Group - Annual Report 2005 �1

Events and prospects 200�

PROSPECTS 200�

2005 was a year in which profit margins came under further pressure. The reasons included greatly increased energy and raw material prices and overcapacity in the market.

Expectations of the economic climate in 2006 are uncertain in country where we operate, so it is difficult to make reliable predictions. We do expect the wave of relocations to the new EU member states by our customers will continue.

On the other hand, it is indeed certain that the market lea-ders have caused a wave of consolidation in paper production, from which we may expect that the smaller and less profitable producers will find it very difficult to get by in future. Hence the 2006 will above all be a year of transition. The first signs of substantially improved margins in sections of the market will only be apparent in 2007 at the earliest.

For the future we are sticking faithfully to our strategy of the service-oriented group that creates packaging solutions with ever-higher added value for its customers in Europe’s econo-mically regions. We will keep the focus in both internal and external growth. For the latter the new EU member states will continue to hold our special attention. Our strong financial structure and profitability remain trump cards in an environment where fierce competition will inevita-bly lead to a lasting consolidation of the market. We will of course continue to reflect our customers’ demand for maximum service, high quality and expansion.

VPK Packaging

VPK Packaging

February 2006

Expanded holding in Fionia Emballage 200� A/S (DK)Ets. A. Depauw & C° NV expanded its interest in the share capital of Denmark’s Fionia Emballage 2003 A/S, which pro-duces cores for the Danish and Swedish markets, from 30% to 50%.

Takeover of four core operations inLuxembourg, Poland, the Czech Republic and Norway from ABZAC SA / Brand name COREXVPK Packaging Group NV took four core operations in Luxemburg, Poland, the Czech Republic and Norway over from the French group ABZAC SA. With the takeover the turnover of the core division has risen from EUR 45 million to EUR 67 million EUR – which represents 15% of the group’s total turnover.In the longer term COREX will be laun-ched as a brand name for all subsidiaries that are operationally involved in cores and edge protectors.

January 2006

Merger of Ons Belang BV and Twin-pack BV (NL)Twinpack BV groups together the Dutch trading activities specialising in packaging for, on the one hand, flowers, bulbs and plants and for the meat industry, chickens an eggs. With sites in Barneveld and Noordwijker-hout, Twinpack BV can additionally, given its role as ideal logistics partner, provide an in-inclusive service on the one stop shopping principle.

VPK Packaging

VPK Packaging

December 2005

Independence for Ondulys SA’s operational activitiesinto the newly formed French com-pany Ondulys Lille SAS. From now on all French corrugated cardboard activities will be grouped under a single French holding company, Ondulys Emballages SAS.

March 2005

Centralisation of Group ServicesGroup central management and their administration moved into the corporate centre, at Villalaan 16 in 9320 Erembodegem (Aalst).

VPK Packaging NV obtained BRC-IOP certificates (module B)These certificates confirm that the Erembodegem (Aalst) Oudegem (Dendermonde) sites meet the in-ternational food safety standards for packaging material used in the food industry. VPK Packaging NV is Bene-lux’ first producer of both corrugated and plain cardboard to be awarded these certificates.

February 2005

Holding in Ondulys increased to �5% VPK Packaging Group increased its in-terest in the French Ondulys group to 95% of the shares. Ondulys has an-nual shares of EUR 120 million.

January 2005

Purchase of land and building near Warsaw (PL) by Ondulys Polska, for development of a corrugated card-board operation.

November 2005

Start up of a new corrugated cardboard line in Wrzesnia (near Poznan – PL) under the Aquila brandOn a new, modern industrial site with an area of 4.5 ha (17,000 m² built over) there stand’s the group’s fastest (400 m/min) and widest (2.8m) corrugated cardboard ma-chine with a production capacity of 180 million m² corrugated card-board a year. As the only ‘sheet feeder’ in Poland will be aiming its production at a large number of smaller local cor-rugated cardboard processing firms (‘sheet plants’).

June 2005

Opening of a new corrugated cardboard factory in Selby (Yorkshire – UK)The new factory, which mainly pro-duces food packaging, will achieve sales of EUR 25 million by 2007. The investment in this new state of the art factory was EUR 22 million.

�Significant facts 2005


VPK Packaging Group - Annual Report 2005�2 VPK Packaging Group - Annual Report 2005 ��

Consolidated key f igures per share

In EUR per share IFRS IFRS Evolution 2005 2004 in% EBITDA (1) 4.79 6.24 -23.2EBIT (2) 1.47 3.42 -57,1Shareholders’ equity 25.55 24.78 3.1Profit before tax 1.33 3.40 -60.9Group’s share in consolidated profit per share 1.25 2.55 -51,0Net cash flow (3) 4.59 5.38 -14.7 Gross dividend 0.51 0.51 0Net dividend per ordinary share 0.3825 0.3825 0Net dividend per WPR share 0.4335 0.4335 0Pay out ratio 40.0% 20.0% 100 Maximum rate 29.50 29.00 1.7Minimum share price 24.02 24.00 0.1Share price at end of December 26.00 24.90 4.4 Share price (31/12) /net profit 20.60 9.80 Share price (31/12) /net cash flow 5.70 4.60 Average number of shares traded per month 18,854 24,807 Number of shares traded per year 226,245 297,686 Number of shares x 1,000 8,763 8,763 Market capitalisation at end of December in €m 227.8 218.2

(1) = operating profit + depreciation + write-downs + provisions(2) = operating profit, i.e. result before financial result, tax and extraordinary result(3) = net profit + depreciation + write-downs + provisions

�

Quotation

On 9 April 1999 VPK Packaging Group shares were listed on the Cash Market, double fixing, of the Brussels Stock Exchange at a rate of 29 euros. Since 24 March 2000, VPK Packaging Group’s shares have been traded on the Continuous Market.

Brussels Stock Exchange and VPK share prices in 2005

At the beginning of 2005, the position of VPK shares was unchanged as against the end of 2004. The shares fluctuated between 24.02 EUR and 25.00 EUR. After announcement of the expansion of the company’s interest in the shareholding of the French Ondulys group to 95%, VPK Packaging Group NV shares rose considerably in February 2005 and continued to fluctuate, with 25.22 EUR as the lowest and 29.50 EUR as the highest quotations in 2005. The closing price at the end of December 2005 (26.00 EUR) was quoted 4.4% higher than the closing price at the end of December 2004 (24.90 EUR).

On 31 December 2005 stock market capitalisation amounted to 227,838,000 EUR compared with 218 EUR million at the end of 2004.

Dividend

The VPK Packaging Group NV’s dividend policy is aimed, on the one hand, at allowing for a sound financial policy within the entire group and, on the other, at proper rewards for the shareholders depending on the results and in comparison with other companies quoted on Euronext Brussels.

At the annual general meeting of 26 May 2006, it is being proposed that a gross dividend of 0.51 EUR per share be distributed for the 2005 financial year, that is 0.3825 EUR net for ordinary shares (after deduction of 25% withholding tax) and 0.4335 EUR for VVPR shares (after deduction of 15% withholding tax). The dividend for 2005 is the same as the gross dividend for the previous year.

Purchase of own shares

On 31 December 2004 the total number of shares purchased was 255,802. In the course of 2005, the group proceeded in accordance with the prescriptions of its articles of association and company law to pur-chase 46,609 of its own shares. On 31 December 2005 the total number of shares purchased amounted to 302,741.

� VPK Packaging Group shares

VPK Packaging

VPK Packaging

VPK Packaging


VPK Packaging Group - Annual Report 2005�� VPK Packaging Group - Annual Report 2005 �5

1. General

In order generally to safeguard the interests of the shareholders and all interested parties, VPK Packaging Group NV continuously endeavours to optimise the management, administration and auditing of its activi-ties. In addition, VPK Packaging Group NV communicates with the press, financial analysts, shareholders and the public at large on a regular basis by means of press releases on its financial results and by distributing its annual report both via the VPK Packaging website and on an ad hoc basis. The Corporate Governance Code for Belgian publicly quoted companies (hereinafter known as the ‘Code’), which has been in force since 1 January 2005, does not contain any compulsive rules but includes princi-ples, provisions and guidelines on the basis of which Belgian publicly quoted companies are managed and audited.

The Code does not formulate any objectives and neither does it provide any yardsticks for discovering whether or not a company has sound management. Nor is the Code an end in itself, but a means of arriving at a good corporate governance model in which a balance is created between enterprise and control as well as performance and compliance with the Code.

It is VPK Packaging Group NV’s general wish to comply with the provisions of the Code taking into account the Group’s specific requirements. In accordance with the relevant provisions of the Code, the Board of Directors adopted at its meeting of 15 December 2005, and in collaboration with the Executive Committee, a VPK Packaging Group Corporate Governance Charter (hereinafter known as the ‘Charter’), which sets out VPK Packaging Group NV’s structure and police as regards corporate governance. The Charter may be consulted via the website.

For VPK Packaging Group NV, the term ‘corporate governance or sound management’ also means sustaina-ble business in which one strives for well balanced development and growth of the company, not exclusively from the management point of view but also in terms of the environment and on the social and economic level.

Board of DirectorsChairman and Managing Director Jean-Paul Macharis

Managing Director Chairman of Executive Committee, CEO Pierre Macharis

Directors NV MainHolding permanent representative Luc Geuten BVBA ACPY permanent representative Bruno Accou BVBA DIMACOR permanent representative Carl Verstraelen BVBA Jozef Schoonjans permanent representative Jozef Schoonjans Daniel Forget Dirk Meeus Denis Zenner

Executive Committee

Pierre Macharis Chairman Executive Committee, CEO Group Coordination and Strategy Coordination Business Units Corrugated Cardboard France and Wrappings / Corner Profiles

Jean-Paul Macharis Group Coordinator Sales and Investments for Corrugated Cardboard Coordination Business Unit Corrugated cardboard Belgium BVBA Jozef Schoonjans permanent representative Jozef Schoonjans CFO BVBA 2B permanent representative Guy Hanssens Investment projects energy, environment and safety Coordination Business Units Paper and Corrugated Cardboard Great Britain

BVBA Vanhee permanent representative Johan Vanhee IT, logistics, supply chain management Coordination Business Unit Normal Cardboard Bauke van der Molen Kuipers (since September 2005) Group coordinator Business Unit Trading Coordination Business Unit Corrugated cardboard Netherlands

Auditor Grant Thornton, Lippens & Rabaey BVCV, Belgian Member Firm Grant Thornton International, represented by Mr Stefaan Rabaey

Management and supervision - Corporate Governance10

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VPK Packaging Group - Annual Report 2005�� VPK Packaging Group - Annual Report 2005 ��

�. Sustainable business

For VPK Packaging Group sound management is also the same as a sustainable business. This implies balan-ced development and growth in terms of economic, social and environmental return. And we wish to meet these requirements. As a business we strive to do the following: we bring products to the market that satisfy our customers’ real needs, we accept our responsibilities to society and the environment, we achieve financial success for our shareholders and we offer our staff a safe and healthy working environment and chances to develop. Training our staff then once again serves both the ecological and the social sides of sustainable business.

We are convinced that our policy and strategy must include a balance between the values that the share-holders expect from their contribution and/or interest. More specifically we are thinking here of the capital that our shareholders have invested, the knowledge and skills of our staff, the turnover with which our customers provide us, the speed of development of the horizontal value chains our partners offer us and the circumstances from which VPK Packaging Group can continue to grow and which our society offers. All shareholders expect a reasonable reward in return for what they offer. We regard it as our duty to stand guard over this.

Finally, to us durable business means pursuing an efficient environmental policy.Our clear ecological approach is apparent in the first place from our production process –production of paper and packaging from recycled paper and production of lighter paper. By producing lighter paper it is possible to produce lighter packaging, which ultimately results in less packaging waste. Optimisation of our internal production flows is also part of our efficient approach to the environment. Furthermore, we are constantly looking for opportunities to reduce our energy consumption and for ways of scoring substantially better than the statutory norms imposed upon us, including discharge standards and flue gas emissions, so that our net impact on the environment becomes ever smaller.

2. Notes on corporate governance practices in 2005 in accordance with the Code

In 2005 the Board of Directors of VPK Packaging Group NV complied with the 9 principles postulated by the code as closely as possible. The deviations from the Code on which the Board of Directors has decided are explained below as follows:

• Occupation of the post of Chairman of the Board of Directors and that of Managing Director:

The Code prescribes that a clear distinction be made between responsibility for the members of the Board of Directors on the one hand and executive responsibility on the other. In consequence, the posts of Chairman of the Board of Directors and Managing Director cannot in principle be occupied by one and the same person.

On the Board of Directors of VPK Packaging Group NV, Mr Jean-Paul Macharis occupies both the post of Managing Director as well as that of Chairman of the Board of Directors.

This combination of posts results from the conviction of the reference shareholder in VPK Packaging Group NV that his interests in the VPK Packaging Group are best safeguarded when the day-to-day management in the widest sense of the word is attended to in both fact and law by people with whom direct or indirect family connections exist.

• Formation of an Audit Committee:

Principle 5 of the Code lays down that the Board of Directors should form specialised committees including an Audit Committee that assists it in the performance of its supervisory duties.

In principle VPK Packaging Group NV subscribes completely to the utility of and need for an Audit Committee. The com-pany also considers that the formation and operation of an Audit Committee in accordance with the relevant guidelines of the Code is best done with an intermediate step, in the sense that the Board of Directors as a whole takes care of the function of an Audit Committee. This gives the Board of Directors the opportunity to prepare thoroughly for optimum operation of an Audit Committee in accordance with the Code. The period for which the Board of Directors as a whole will act as an Audit Committee is indeterminate and will be reviewed annually.

• Remuneration of the Board of Directors and the Executive Committee: In its seventh principle the Code provides, inter alia, that in its annual report the company should publish on an individual

basis the amount of the remuneration and any other benefits granted to the managing director and on a global basis the amount of the remuneration and any other benefits granted to the members of the Executive Committee.

The company considers that, by publishing the total of the gross remuneration of the executive members of the Board of Directors and the members of the Executive Committee, together with the total remuneration of the non-executive directors, it complies as closely as possible with the spirit of the Code’s guideline without infringing upon the personal privacy of each director and member of the Executive Committee as protected by law.

VPK Packaging



In accordance with article 20 of the consolidated articles of association, the Board of Directors has at least three members. These do not have to be shareholders. The term of their appointment may not exceed six years. Retiring directors are eligible for reappointment.

AUTHORITYIn accordance with article 20 of the consolidated articles of association, the Board of Directors has the widest authority to perform all acts that are necessary or useful for the achievement of the company’s object.

This includes (apart from what is provided by statute):• discussing and, where appropriate, approving strategic and expansion plans and budgets;• appointing and dismissing members of the Executive Committee and supervising the Committee’s work;• establishing the valuation rules;• discussing and, where appropriate, approving possible acquisitions.

For a more detailed summary, we would refer you to the Charter, which can be consulted via the website.

OPERATION The Board of Directors meets regularly, and at least four times a year. In 2005 meetings were held on 17 March, 15 June, 15 September and 14 December. In addition, the Board was always fully attended, save at the March meeting, when Mr. Daniel Forget and Nicolas Sauvaige sent their apologies, and at the June meeting, when Mr Luc Geuten, the permanent representative of NV Main Holding and director, sent his apologies. The directors receive the agenda of each meeting beforehand together with the requisite information on the subjects to be discussed. In accordance with article 18 of the consolidated articles of association, resolutions of the Board of Directors are passed by a simple majority of the votes cast.In 2005 all resolutions were unanimous. In accordance with article 19 of the consolidated articles of as-sociation the deliberations of the Board of Directors were recorded in minutes, which were signed by the members present.

ALLOCATION OF PROFIT/LOSSWe wish to pursue a dividend policy that allows for: • an adequate reserve of funds to implement the group’s strategy;• endeavours to have a well-constructed balance sheet;• a proper reward to the shareholders for the risk taken in comparison with other enterprises quoted on

Euronext Brussels; • an annual increase in the dividend, having regard to earnings.

Board of Directors

COMPOSITION

Executive Directors (representatives of the reference shareholders)

Jean-Paul Macharis (°1955) Chairman van de Board of Directors and managing director

Pierre Macharis (°1962) Managing director, Chairman Executive Committee

BVBA Jozef Schoonjans permanent representative Jozef Schoonjans (b.1951) - Director

Daniel Forget (°1941) French nationality, general manager Ondulys group - Director

Non-Executive Directors

NV Main Holding permanent representative Luc Geuten (b.1943)CEO and joint chairman of Mitiska NVIndependent Director

BVBA DIMACOR permanent representative Carl Verstraelen (b.1952) CEO Somati Group, former CEO of Amylum (now Tate & Lyle) and CFO of LHOIST Group Independent Director

BVBA ACPY permanent representative Bruno Accou (b.1961)General Manager Corporate Banking DEXIA BankIndependent Director

Dirk Meeus (°1966) Partner Allen & Overy LLPIndependent Director

Denis Zenner (°1976) Manager M&A UCBDirector


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VPK Packaging Group - Annual Report 2005�0 VPK Packaging Group - Annual Report 2005 �1

Appointments and Audit Committees

Since the Board of Directors as a whole exercises the functions of both the Appointments and Audit Committees, these two committees con-sist of all members of the Board of Directors.

In its capacity of Appointments Committee the Board of Directors is responsible for the objective and professional conduct of the process of appointing members of the Board of Directors and Executive Commit-tee. Consequently the Board of Directors also meets in this capacity as the need arises.

In it capacity as Audit Committee, the Board of Directors exercises its audit function over the entire VPK Packaging Group. In this capacity too the Board of Directors meets when it considers it necessary. Howe-ver, it discusses the findings and recommendations of the auditor and the people responsible for internal audit activities at least twice a year, together with problems that may possibly have arisen during the audit process.

Executive Committee

The transfer of powers from the Board of Directors to the Executive Committee, as resolved upon on 24 March 2003, was approved by the extraordinary general meeting of 30 May 2003.

In practice the following areas fall within the remit of the Executive Committee:

• development of strategy and long-term objectives, which are sub-mitted to the Board of Directors for approval;

• execution of the strategy (translation into plans, firming up objectives);• monitoring budgets and directing investment plans;• checking and coordinating activities and subsidiaries within the group;• directing internal audit;• coordinating the Business Unit Managers;• detecting and realising group synergies;• developing new activities within the core activities;• proposing possible acquisitions to the Board of Directors.

In accordance with the general provisions concerning the Executive Committee and on the basis of the summary of its most important acti-vities up to and including 31 December 2005, the meeting of the Board of Directors of 15 March 2006 granted discharge to the committee’s members.

COMMITTEES FORMED BY THE BOARD OF DIRECTORSWe have decided to perpetuate the Special Committee for monitoring the Warrant Plan, the Appointments Committee and the Remuneration Committee. The Board of Directors in its entirety also acts as an Audit Committee.

These decisions are prompted by the wish to retain the current efficiency of decision making given the size of the business and the relatively limited numbers of the Board of Directors.

An overall view of the composition, operation and authority of the various committees is provided below. For more details of these committees please see the Charter, which can be consulted via the website.

Special Committee for monitoring the warrant plan

In February 1999 the Annual General Meeting resolved to create a warrant plan for the benefit of executives and members of management and the Board of Directors. As a result warrants can be allocated giving entitlement to subscribe to a maximum of 100,000 shares, which represents a maximum of 1.13% of the subscribed capital. The object of this was to promote the long-term motivation of management and to increase and perpetuate the profitability of the group. The committee met on 27 May 2005 because warrants had been exercised by eight warrant holders. No new warrants will be allocated.

Composition and operationThe Special Committee for monitoring the warrant plan, which meets at least once a year, consists of two members- Jean-Paul Macharis (Chairman)- Pierre Macharis.

Authority • designating the people eligible for allocation;• determining the number of warrants;• determining the terms of allocation included in a warrant plan.

Remuneration committee

Composition and operationThe Remuneration Committee consists of five members, of whom two are independent non-executive directors, and meets at least twice a year. The Committee has a merely advisory role vis-à-vis the Board of Directors.

Members- Jean-Paul Macharis (Chairman)- Pierre Macharis- BVBA Jozef Schoonjans, permanent representative Jozef Schoonjans- BVBA ACPY, permanent representative Bruno Accou- BVBA DIMACOR, permanent representative Carl Verstraelen

Authority The Committee has a merely advisory role vis-à-vis the Board of Directors. Hence it makes general recommendations on pay policy and, in particular, on the remuneration of the directors and auditors together with the members of the Executive Committee.

VPK Packaging


VPK Packaging Group - Annual Report 2005�2 VPK Packaging Group - Annual Report 2005 ��

Protocol for avoidance of abuse of insider knowledge

On 1 March 1999 the Board of Directors approved a ‘Protocol for avoidance of abuse of insider knowledge’ relating to transactions in company securities on their own account by directors, members of management, executives and other designated persons (‘insiders’).

The protocol was amended and modified in accordance with the law of 2 August 2002, as amended by the Programme Act of 22 December 2003, which applies to all acts that may be perpetrated after 31 December 2003.

The protocol places restrictions on carrying out dealings in the company’s securities during well-defined periods before publication of the financial results (‘closed periods’) and during all other periods deemed to be sensitive (‘frozen periods’).Every ‘insider’ eligible to do so (once again) signed the above-amended protocol in 2005. A blank copy of it may be consulted via the website.

Supervision of compliance with the rules comprised by the Protocol is entrusted to Messrs. Pierre Macharis (CEO), Jozef Schoonjans (CFO) and Luc Ledegen (company lawyer), who are appointed as compliance of-ficers by the Board of Directors. In 2005 the compliance officers were not informed by any insider of trans-actions that might be performed in the company’s securities.

Auditor

Grant Thornton, Lippens & Rabaey BVCV Belgian Member Firm Grant Thornton International, represented by Mr Stefaan Rabaey, whose registered office is at 9000 Gent, Lievekaai 21, Belgium, was reappointed as auditor for a period three years at the ordinary general meeting of 27 May 2005. The mandate ends with the 2008 annual general meeting.

During the 2005 financial year the auditor’s remuneration and that of parties associated with the auditor amounted to 28,190 EUR (excluding VAT), of which 19,290 EUR related to statutory audit. In addition the auditor and parties associated with him were awarded fees of 8,900 EUR for other audit assignments and other non-audit services.

In addition the meeting of the Board of Directors of 15 March 2006 granted a well-circumscribed power or representation to the Executive Committee, subject to the conclusive condition of approval by the general meeting of 26 May 2006. The com-pany is properly represented in the recruitment, termination and dismissal of employees and for signature of insurance policies and confidentiality agreements by two members of the Executive Committee acting together. The company is also properly represented for the provision of real or personal security and for the signature of takeover agreements, and letters of intent, letters of credit, loan agreements and settlements of actions the amount of which is less than or equal to 500,000 EUR, by two members of the Executive Committee acting together.

Day-to-Day Management

In accordance with the provisions of article 23 of the consolidated articles of association, the Board of Directors has entrusted day-to-day management of the company to Jean-Paul Macharis and Pierre Macharis, both of whom have the title of managing director.

In accordance with the provisions of article 23 of the coordinated articles of association, Business Unit Managers have been appointed who are responsible for their Business Units on a profit model basis. Within their set budgets they and their staff are totally responsible for their profit and loss accounts. Budgets for ROC targets, investments and intra-group supplies are set annually at group level.

Remuneration

The executive directors and the most important members of management are remunerated for their management functions by means of a fixed salary and a variable bonus (with ceiling) that is dependent on their individual performance and the financial results of VPK Packaging Group NV and its subsidiaries.

In 2005 the total gross remuneration of the executive members of the Board of Directors and Executive Committee, inclu-ding the fixed and variable remuneration for their management functions for VPK Packaging Group and its subsidiaries, was 1,485,815 EUR, of which the fixed part amounted to 1,242,948 EUR and the variable part to 242,867 EUR. The indemnity of the non-executive directors amounted to total of 33,000 EUR.

No advances, loans or guarantees have been granted by VPK Packaging Group NV to directors, managers or supervisory officers. The composition of the Executive Committee underwent a change in 2005 as against 2004, as a result of the appointment of Bauke van der Molen Kuipers as from 1 September 2005. No severance payments were made. Neither were any shares, share options or other rights to acquire shares granted to the managing directors of members of the Executive Committee in 2005.


VPK Packaging Group - Annual Report 2005�� VPK Packaging Group -Annual Report 2005 �5

12Environmental pol icy

It is necessary to keep on looking for a balance between industry, the economy and jobs on the one hand and a policy of environmental awareness on the other. This creates conditions that allow a sustainable business. A host of elements of our production process contribute to a better environment.

1. Raw materials In 2005 Oudegem Papier NV used 392,000 tonnes of recycled paper as a raw material for its production of paper for packaging purposes. This is equivalent to approximately half of what is collected in Flanders. What is more, recycled paper is a raw material that can be reused many times.

2. Water

In 2005 Oudegem Papier NV pumped approximately 1,200,000 m³ of water out of the Dender. Thanks to implementation of Best Available Techniques or BATs, our water consumption per tonne of paper produced is amongst the lowest in the world. The water purification in Oudegem is one of the most efficient in the industry and uses a highly advanced technique.

�. Production of biogas (green energy)

We burn the biogas produced during purification of the wastewater in our boiler, after which the steam produced is expanded in our steam turbine. The electricity it generates is recognised as 6% green power – so on an annual basis 3000 MWh of green power are produced. In order to get a higher electrical return, we installed a biogas engine in 2005, which supplies 9000 MWh of green power a year. The heat from the combustion gasses from the engine is recovered and used for the benefit of the manufacturing process.

2005

2005 was brimming with new things. On 1 March our general departments (legal, financial and treasury, audit and general management) moved to Aalst, which today acts as VPK Packaging Group’s administrative centre.

VPK Packaging Group NV also went in hunt of a single partner for interim tasks. After an extensive search we selected Adecco as our European partner for all interim tasks. The collaboration began on 1 January 2006.

VPK Packaging Group NV continues to grow. Besides Zyrardow a second site started up in Poland, a corrugated cardboard factory in Wrzesnia near Poznan.

VPK Packaging Group NV also made training policy a priority. We chose only local partners to draw up a joint policy. Its imple-mentation was made possible by the Flemish Community and Europe as part of an ESF project. In 2006 this will be practically discernable in our factories.

Safety

In past years VPK Packaging Group NV has concentrated on Belgium to perfect a culture of safe operation. This has worked out to be positive and efficient. Accordingly this approach was extended to the entire VPK Packaging Group at the begin-ning of 2005.

Two important lessons that we have drawn from 2005:• One period of accident-free work offers no guarantee for the following period• There are more and more sites in the Group that have periods without accidents

The first observation teaches us that accidents are only the tip of the iceberg and that their absence is not yet a sign of a guaranteed safety culture. This needs more. Hence our concern continues to be applied to the supporting structures and their acceptance by the staff. Communication is one of the abiding points for attention in this.

The toolbox meetings are a fine example of safety communication. They make it possible to put the information across to the staff as with maximum immediacy: no paper instructions but a report from manager to direct operator. This aspect may gradually be regarded as a cornerstone of our safety culture.

We are furthermore happy to be able to record that within the VPK Packaging Group NV there are being more and more periods without a single accident. In fact more and more sites are succeeding in working without accidents for a full year.

The fire safety of our factories is another unremitting concern in terms of both physical protection and day-to-day manage-ment. We place the emphasis on a synergy between each site’s own responsibility and the group-wide approach that adds to advice and monitoring. Here too we continued to integrate 2004’s preventive approach with the daily operation of our organisations in 2005.

Social report11

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5. Air

In 2005 all boilers were well below the licensing standards im-posed for flue gas emissions. Neither will the stricter emissions standards that are being imposed in Europe from 2008 repre-sent a problem.

�. Waste management

Production waste is divided into the combustible and the non-combustible. At present both fractions are dumped. VPK Pac-kaging Group NV are currently investigating how the energy of the combustible part can be exploited. In 2005 we obtained an environmental permit to burn our recycling residues in our boiler as a supplementary fuel. In order to meet the stricter standards, VPK Packaging Group NV will be installing flue gas scrubbing. This will cut emissions of SO2, NOX and dust by at least half. The EVA (Ecological Valorisation) project will reduce the amount removed to dumps by 20,000 tonnes. Fractions such as iron, stainless steel and building waste are collected se-parately and taken away by recognised processors. The waste cardboard from the packaging departments acts as a raw mate-rial for the production of paper for packaging purposes.

�. Research and development

The process water, which mainly comes from the Dender, is re-used approximately fifty times. Our endeavours to use as much of a closed cycle as possible mean that we release as little as possible, restrict the intake of fresh water and reuse water to the full. The limiting factor in this strategy is the high lime concen-tration. When paper is dissolved, a number of fillers, including lime, end up in the water. At certain concentrations the lime is deposited in pipes and pumps and causes problems in the long term. In 1998 we entered into a collaborative association with a number of European partners to approach the problems of closing the circuit. One of the achievements of this project is the IC reactor mentioned above. In addition a pilot project is going on in partnership with the University of Ghent to attack the dis-solved lime by biocatalytical calcium removal.

�. Energy and CO2 emissions

Under the Kyoto Protocol Belgium’s emissions of greenhouse gasses in the period 2008-2012 must be 7.5% less than in 1990. In practice these reduction targets are translated into a maximum permitted quantity of emissions, the so-called emission entitlements.

1) This raised the question of how these emission reductions should be translated to energy intensive busi-nesses. The choice was for objective standards, more particularly using a benchmarking system: energy intensive businesses are undertaking to bring their to world-best level by 2012. In return the Flemish government is guaranteeing that it will not impose any additional measures in the field of rational energy consumption or CO2 emissions on such companies.

Oudegem Papier NV have also signed the benchmarking covenant. Their energy efficiency has been audited by recognised benchmarking consultants from Finland, Jaacko Poyry Consulting. They came to the conclusion that Oudegem Papier are currently among the world’s best. It will be a challenge to us all to stay that way. For 2005 VPK Packaging Group NV has kept to its commitment. We were also granted the necessary energy entitlements. For the years to come we want to investigate whether we can use other forms of biomass besides biogas to satisfy our energy needs.

Together with Electrabel we have installed a combined heat power system consisting of two gas turbines and two heat recovery boilers. The gas turbines each drive an alternator, which produces 14 MW of elec-tricity which provides the energy source for the machines. The heat recovery boilers recycle the residual heat from the flue gasses of the gas turbines to generate steam. This steam is used to dry the paper. This means we in a manner of speaking have two sources available from a single system. In addition the high-pressure boiler produces steam from coal. This is expanded in the steam turbine to drive the generator, producing 9 MW of electricity.

2) In order to achieve its Kyoto targets, in de period 2008-2012 the Federal government will be making up the difference between the national target (135.27 million tonnes CO2 eq.) and the targets imposed on the regions (137.73 million tonnes CO2 eq) by buying emission allowances on the international market. We applaud this and would argue that the flexibility mechanisms, particularly Joint Implementation (JI) and Clean Development Mechanism (CDM), should be put into practice with all speed. Implementation of the CO2 reduction must be given priority where it is economically most logical and profitable.

3) We are additionally convinced that implementation of the Kyoto Protocol will have important conse-quences for our competitive position. Calculations suggest that Belgium will have to bear 12.5% of Europe’s total bill for Kyoto, although its Gross Domestic Product is less than 4% of the European GDP. The Flemish government will naturally first have to investigate the economic impact of the measures imposed.

VPK Packaging



In 2001 we began an extensive Business Process Reengineering project, to prepare us for the great challenges of the decades to come. 2005 was another milestone in the process: we successfully implemented the entire Normal Cardboard department and the finance depart-ments of the French corrugated cardboard operation Ondulys. In January 2006 the Polish corrugated cardboard operation began in turn with the support of the SAP ERP system. This project is concentrating on six things:

1. Standardisation, rationalisation, streamlining and simplification of data, procedures, business processes, administration and reporting, with a view to further professionalisa-tion of our staff.

2. Compliance with external requirements: as a publicly quoted organisation we recognise our external obligations to our shareholders (International Financial Reporting Standards or IFRS).

3. Our customers and customer service: as a service organisation we recognise the ad-ded value of a high level of service in addition to the added value of the packaging product itself. With a stable backbone for FLI® we create not only a competitive advantage for our Business Units but also, most importantly, the intended added value for our customers.

4. In this market segment too, the new economy is a major challenge and an opportunity for the future.

5. As a lean and mean organisation further cost efficiency and control, are of vital impor-tance. The BPR project will mainly involve further streamlining and optimisation of the group’s financial processes.

6. Given the substantial initial investment of EUR 8 million spread over 5 years, we are making the explicit choice to carry out this project at group level. All Business Units go through the same process so that we are able to exploit group synergies to the full, not only in terms of content but also of project cost:• In 2002 we successfully implemented the BPR project in our wrapper depart-

ments.• In April 2003 implementation of the ERP system was completed in the group’s

financial department in Belgium and in our biggest trading company Ons Belang in Noordwijkerhout (NL).

• In 2004 we implemented the ERP system in the finance department of Rigid Group and at Oudegem Papier.

• In 2006 we anticipate implementation in the Belgian packaging divisions of Golf-karton (Q3), the Dutch trading operation Twinpack (Q2) and the British Corex UK (formerly known as Deva Cores) core operation (Q1).

• We are also preparing for implementation in the packaging division in Raams-donksveer in 2007.

Business Process Reengineering

We wish to continue with our image as a service-oriented organisation. Logistics and Supply Chain Manage-ment in particular remain important links in the business-to-business relationship with markets including fast moving consumer goods. We believe that at this point in that make-to-order, customer specific environment we are able to stand out from our competing suppliers of high-quality packaging in corrugated and normal cardboard.

With business-to-business (B2B) supply chain optimisations, known among our customers as the FLI® mo-del (Forward Logistic Integration), we create added value in the supply chain: we cut inventory values and coverage, calculate the optimum production and order quantities and avoid certain service costs (cost-to-serve). From such logistics integration projects we turn the ambitious VPK Packaging Solutions® concept into reality.

We recognise the strategic importance of this approach to the market and are heavily engaged in implemen-ting an extensive Business Process Reengineering project in all our departments.

1� Logistics

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