group figures 2003 – 2007

		2007	2006	2005	2004	2004	2003
		ifrs	ifrs	ifrs	ifrs	hgb	hgb
Sales
Sales revenues	in € m	2,156	1,911	1,695	1,514	1,524	1,435
Germany	in € m	347	289	229	279	282	287
Rest of world	in € m	1,809	1,622	1,466	1,235	1,242	1,148
Export share	in %	84	85	87	82	82	80

Earnings
Earnings before taxes	in € m	154	110	91	100	96	111
Net income	in € m	102	78	63	62	62	60
Earnings per share	in €	3.25	2.45**	2.00**	1.95**	1.96**	1.91**

Asset and capital structure
Non-current assets	in € m	475	430	403	382	290	306
of which property, plant and equipment,
intangible assets, and financial assets	in € m	422	374	357	335	268	272
Current assets	in € m	1,209	1,042	880	828	704	564
of which cash and equivalents	in € m	54	58	57	75	75	56
Equity	in € m	708	629	572	526	483	435
Total debt	in € m	976	843	711	684	511	435
Non-current liabilities	in € m	155	147	155	151	—	—
Current liabilities	in € m	821	696	556	533	—	—
Total	in € m	1,684	1,472	1,283	1,210	994	870

Cash flow/capital expenditures
Cash flow	in € m	149	127	110	107	101	100
Capital expenditures	in € m	98	78	78	60	41	52
Depreciation, amortisation,
and write-downs	in € m	48	50	47	45	42	40
Net cash position (cash and cash
equivalents less debt)	in € m	53	57	52	74	74	50

Profitability ratios
ros	in %	7.1	5.7	5.4	6.6	6.3	7.8
Return on equity before taxes	in %	23.0	18.3	16.6	19.9	20.9	26.4
roce	in %	20.2	16.1	14.7	18.0	18.7	22.5
		9,588	9,165	9,029	8,897	8,897	8,690
Employees (at 31 Dec)		7,857	7,531	7,409	7,345	7,345	7,258
Germany		1,731	1,634	1,620	1,552	1,552	1,432
Rest of world
Dividend
		0.70*	0.53**	0.47**	0.43**	0.43**	0.37**
Dividend per ordinary share	in €	—	—	—	—	—	0.40**
Dividend per preference share	in €

*As per proposal for appropriation of profit **Adjusted for share split

krones group annual report 2007

krones has been growing steadily for many years. Our success is built on products that offer customers added value. krones machines and lines operate faster and more reliably than comparable products from our competitors – and they do so using less resources. That's what makes us the leader in our market.

We sell our machines, systems, and services around the globe. More than four-fifths of consolidated revenues are generated outside our home market of Germany. krones is, without doubt, a global player.

But at the same time, krones' roots are firmly planted in Germany. In production, we utilise the advantages Germany offers to consistently maintain the highest possible levels of quality and innovation. At the same time, we are strengthening our international postition through the targeted expansion of our global service network. We firmly believe that this strategy will enable us to achieve our ambitious goals for growth well into the future.

krones compact 3

sh eh ol de To o ur ar rs	4
Th rd e E tiv e B xe cu oa	6
al nd Go st rat ies s a eg	8
in vie 20 07 re w	12
at gl kr on es a an ce	14
Th ha e k ro ne s s re	20

consolidated management report

los d de Di ire sc ur es re qu un r
§ 3 of th e G C cia l C od 15 er m an om m er e	30
ic vi Ec t on om en ro nm en	32
fig in kr on es ur es	50
fr th Re rts ts po om e s eg m en	68
Re ch nd d elo t se ar a ev pm en	84
Ris k r t ep or	88
l re sib ilit Co at ia rp or e s oc sp on y	94
af he b ala he da Ev ts te r t et te en nc e s	10 4
tlo ok Ou	10 5
sib ilit ta te t Re sp on y s m en	10 7

corporate governance

by th d Re rt e S vi Bo er ry ar po up so	11 2
be of th d M e S vi Bo em rs up er so ry ar
d t he rd Ex ut ive B an ec oa	11 4
Co at io t m pe ns n r ep or
(p t) f t he t o t r ar m an ag em en or ep	11 5
Co at t k ro s rp or e g ov er na nc e a ne	11 8

other information

ldw id kr on es or w e	12 0
l g los Co cia m m er sa ry	12 2
Te ch ni l g los ca sa ry	12 4

A brief look back at 2007 confirms that krones is on the right track. Sales and profits increased for the eighth straight year. At €2,156m, revenues were up 12.8% on the previous year. After-tax earnings rose an impressive 31.4% to €101.8m. In 2007 we benefited from an extraordinarily strong business trend in the sector as well as from our position as the only full-service supplier for our market worldwide. We also cemented and expanded our customer base with innovations and even better services.

I am especially pleased that our joint efforts to improve efficiency are bearing fruit. At 7.1%, our 2007 ebt margin – that is, the ratio of earnings before taxes to sales – is not only far improved from 5.7% in 2006 but also solidly within our margin target. We will continue to invest more than average in state-of-the-art production systems and information technology in order to further improve internal processes and boost our cost-effectiveness.

At the same time, krones will continue to invest heavily in research and development in order to secure and extend our technology lead. We are also ramping up our profitable service business. Process engineering and internal logistics are another major focus of our growth strategy (see pages 8 to 11). Initial successes in the past fiscal year validate our efforts and recommend further investment in these segments.

Of course, profit and return on investment play an important role in all of our strategic considerations. But they are not our only concern. Pursuing a balanced business policy that takes into consideration not only shareholder interests but also the interests of our customers and employees has been and continues to be important to us. This is one more thing that sets us apart from many other listed companies. We recognise that our workforce of nearly 9,600 employees worldwide is the very foundation on which krones' success is built. That is why I would like to take this opportunity to thank the entire krones team for their great dedication and hard work.

I would also like to thank our business partners – it has been a pleasure working with you this year – and, last but not least, our shareholders, for whom we plan to increase our dividend more than 30% to €0.70 per share in 2007. This will be the ninth dividend increase in a row, further proof that krones is on the right track for a long and prosperous future.

Yours truly,

Volker Kronseder

Dear shareholders and friends of krones,

For several years now, krones has pursued a different path than its peers in the German machinery sector. We firmly believe that, even in the age of globalisation, Germany is the only right location for producing machines and lines of the best quality and technology. Without doubt, there is plenty of potential for making Germany a more attractive place to do business. But for us, on the whole, the benefits far outweigh any drawbacks. First and foremost, the wealth of qualified, motivated employees speaks well for production in Germany. An industry survey confirms this, showing that Germany's machinery and industrial equipment manufacturers have mastered far more complex processes than most of their competitors worldwide. We invested around €77m in property, plant and equipment in 2007 to expand our domestic production and secure its future for the long term.

But krones' commitment to Germany as a business location does not mean that we are neglecting the varied needs of our customers worldwide. On the contrary, krones also provides local service to its customers around the globe. However, we offer only those services locally that yield added value for the customer, such as reliable, 24/7 repairs and maintenance. In order to further expand these offerings, we are establishing service bases, which we call Lifecycle Service Centres, in major sales regions. Such Centres are already up and running in Taicang, China; Franklin, Wisconsin, usa; Sao Paulo, Brazil; and Neutraubling, Germany. We will open three more Centres in 2008.

»krones will continue to make Germany its primary business location and invest in Germany.«

Volker Kronseder Chairman of the Executive Board krones has added a chapter to its growth story, increasing sales and earnings for the eighth straight year.

krones' focus is not on shortterm profit targets. Our strategy is geared toward long-term success.

To our shareholders

The Executive Board Volker Kronseder *1953 Member of the Executive Board

since 1989. Chairman since 1996. Personnel Management and Social Affairs, Corporate Communications. Volker Kronseder is the oldest son

of company founder Hermann

Kronseder.

Hans-Jürgen Thaus *1949 Deputy Chairman of the Executive Board since 1997. Finance and Accounting, Controlling, Information Management, and Process Management.

Member of the Executive Board

Rainulf Diepold *1955 since 1996. Sales and Marketing.

Christoph Klenk *1963 Member of the Executive Board since 2003. Research and Development, Engineering, and Product Divisions.

Werner Frischholz *1951 Member of the Executive Board since 2003. Materials Management, Assembly, Manufacturing, After-Sales Service, and Quality Assurance.

»krones has grown rapidly in the pas^t few years. And we want to continue this success story for many years to come.«

Hans-Jürgen Thaus Deputy Chairman of the Executive Board

Food and beverages – the basis for continued growth for krones

As a manufacturer of machines and lines for producing and bottling beverages and liquid foods, krones benefits from population growth. Right now, some 6.7 billion people inhabit the earth. And we're adding some 80 million more each year. All of these people want to eat and drink, irrespective of economic cycles.

Drinking water is a limited resource. It must be handled with care. Many people today have no access to clean drinking water because the water that is available is contaminated with sewage. Industrial bottling and packaging of water can solve this problem.

In the developing world, which is where virtually all of the world's population growth is occurring, the need for clean, packaged water is enormous. Certainly, it will take some time before many of these countries are in a position economically to satisfy this need. But demand for our products is already on the rise in these countries.

In the industrialised countries, a health and wellness trend is boosting consumption of water and other non-alcoholic beverages. In addition, consumers are becoming increasingly aware of the contents of the beverages they drink and preferring beverages that do not contain preservatives. This trend is driving an increase in demand for cold aseptic filling lines worldwide. krones is the leader in this segment.

We are also benefiting from the development of completely new types of beverages, particularly milk and dairy drinks. The variety of packaging types, shapes, and sizes into which these products are filled is enormous, and demand for the corresponding packaging and labelling machines remains equally so.

krones' medium-term goals

General goals

Expand our core business: »bottling lines and packaging technology«
Strengthen our service business (Lifecycle Services)
Defend and expand our technology lead
Streamline processes and boost productivity
Achieve further growth through acquisitions

Finance and accounting goals

Annual revenue growth of at least 5% to 10%
Pre-tax return on sales of at least 7%
Return on capital employed (roce) of at least 20%
Maintain solid balance sheet ratios and independence from banks

krones' strategy

In the future, it will no longer be enough to supply our customers with innovative, high-performing machines and lines for bottling and packaging food and beverage products. Customers are focused not only on the quality of their products but increasingly on the overall costs involved in producing and packaging them. For krones, that means we have to shift from being an equipment supplier to being a solutions provider – and that will mean meeting a far more complex set of demands. In order to achieve this shift, we will have to master our customers' entire value chain.

Goals and strategies

World population and scarcity of drinking water Source: Population Action International 2006

krones is establishing a unique, hard-to-copy business model

We are currently the world leaders in our core business area – bottling and packaging beverages. It is from this position of strength that we are facing the challenges of the future. Now, we want to master the entire value chain, including all upstream and downstream processes such as process engineering and internal logistics. Although we already offer our customers complete turnkey solutions, we still have to buy in components for process engineering. In the future, we want to provide a broader range of products directly from krones.

With our internal logistics division, we have expanded our portfolio to include material flow technology, so that we now cover beverage producers' entire process chain from a single source. We intend to further expand this rapidly growing business segment.

Process engineering

At krones, process engineering means combining system expertise and process technology with microbiological and it expertise to create a seamless, comprehensive solution for a customer's entire production line. The market for these types of products and services is at least as large as our traditional machinery market – and it is growing at a faster pace. krones now intends to increasingly apply the process engineering expertise we have gathered over many years of working with sectors like the brewing industry to other sectors. This expertise serves as a solid basis on which to master the sensitive processes involved in the production of other beverages like soft drinks and dairy drinks.

Alongside efforts underway within the company, krones is not ruling out the option of buying in products and expertise. However, we will only acquire profitable companies that carry a reasonable price tag.

Internal logistics

Today's beverage operations must meet high standards for production. Their warehousing and dispatching processes also have to run like clockwork. Several decades of experience in our core business has given us detailed knowledge of the logistical processes involved in beverage plants. And we plan to leverage this knowledge further by expanding our internal logistics division.

krones internal logistics offers complete systems that enable companies to streamline and optimise all of their material flows. Our portfolio ranges from plant planning services to warehousing systems like fully automated high-bay warehouses to order-picking and conveyance systems. We also provide all the software to go along with our hardware.

krones is pursuing a clear strategy for growth.

In the first half of 2007, krones generates sales of €1,053.9m. That is up 14.5% year-on-year. At €47.6m, profits are up by nearly 25% on the year-earlier period. The continued positive outlook prompts the Executive Board to revise its earnings target for the year as a whole upward and to expec^t an ebt margin of over 7%.

Q3

The share split resolved by the annual shareholders' meeting takes effect on 22 August. After the split, which entails a capital increase from the company's own financial resources, each share is split into three shares. This gives the share a »lighter« feel.

Growth at krones picks up in the months from July to September 2007. Sales are up 22.8% on the year-earlier quarter to €515.8m. At €29.3m, third-quarter ebt is up 81% compared with the same period of 2006. Unlike in previous years, the third quarter of 2007 is spared the sharp seasonal decline that is common for this time of the year. The stronger Q3 sales in 2007 can be attributed to a good business trend but also to internal process improvements.

The extraordinarily strong quarter prompts the Executive Board to upgrade its forecast of sales growth for fiscal 2007 to more than 12%.

We make a strong showing at the K 2007 trade fair in Düsseldorf, with several innovations like our new blow-moulder-filler bloc and an ultra-lightweight pet bottle. From 14 to 16 November, we present at the Brau Beviale in Nuremberg, the most important capital goods fair for the international beverage industry in 2007. krones products are in high demand here. At the Brau Beviale, krones and Hofmühl Brewery announce their plans to build the first plant to use solar-generated process heat. The krones system will reduce the brewery's consumption of heating oil by

around 60%.

The capital markets are fraught with uncertainty due to the mortgage crisis in the us. The krones share is also affected by the price slump, but nevertheless ends the year with a 42% gain. By contrast, the mdax closes the year with only a 5% gain. This impressive performance secures krones' spo^t on the mdax.

The krones Contiform, which produces pet bottles, celebrates its 10th anniversary. Development of the machine began in early 1997 and the first Contiform 16 Compact was unveiled at the drinktec-interbrau trade fair in September of the same year. The machine has evolved steadily since then. Today, plastics technology is a major contributor to krones' growth.

Q1

krones starts 2007 fast and furious, with an order from Altmühltaler Mineralbrunnen AG for the construction of a complete bottling plant. The order has a total volume of more than €80m.

krones' first-quarter results are right on track for growth. Sales are up 11.8% to €505.0m and after-tax earnings are up 19.9% to €22.9m.

Q2

The 27th regular annual shareholders' meeting of krones ag is held in Neutraubling, Germany, on 20 June. All of the resolutions proposed by the Executive Board and Supervisory Board are adopted by a large majority. In addition to increasing the dividend to €1.60 per share (previous year: €1.40), the shareholders' meeting also approves a 3-for-1 stock split aimed at making the share easier for private investors to trade. The krones share is in high demand on the stock exchanges and continues to hit new record highs. At the end of the quarter, the share price is above €170, for a gain of nearly 50% from the start of the year.

ord ers Q 1 20 07: € New 557 .1m

Sale s Q1 200 7: €5 05.0 m	Sale s Q2 200 7: €5 48.9

ebt Q 1 20 07: € 36.1 m	ebt Q 2 20 07: € 39.6 m

shar arch * e at 31 M 200 7: €4 8.90 kro nes

* Adj usted for s hare split	* Adj usted for s hare split

New orders Q2 2007: €552.4^m Sales Q2 2007: €548.9^m

New orders Q4 2007: €537.4^m Sales Q4 2007: €586.3^m ebt Q4 2007: €48.6^m krones share at 31 December 2007: €54.99

	Clea hno logy ning tec
			hno logy Con r tec veyo
Seg t men Prod fillin d de uct tion g an cora	Plas tech nolo tics gy chno logy Insp ectio n te	Fillin chno logy g te chno logy Insp ectio n te		Labe lling hno logy tec chno logy Insp ectio n te	Pack nd p allet ing a ising tech nolo gy
	Syst inee ring ems eng
	Info tion tec hno logy rma
Seg t men hou nd Prod Brew uct t reat t se a men duct echn olog Beve ion/ ess t rage pro proc y filtr chno logy tech nolo atio n te gy			hnol Past euri satio n tec ogy
Seg t men e (k e) Low out put rang osm	Plas tics	Fillin g te chno logy		Labe lling tec hno logy	Pack ing a nd p allet ising tech nolo gy
			hno logy Con r tec veyo

filtration technology Flash pasteurisation Pasteurisation

Internal logistics

krones compact

krones at a glance By focusing on making krones a systems supplier for the beverage and food industries, we are systematically orienting ourselves toward our customers' needs. Our customers expect the highest levels of quality and technological sophistication of our machines and lines. They also expect us to have comprehensive knowledge of their production processes, so we can deliver the right solutions for their applications. Thus, intelligently combining individual building blocks forms the foundation for our success.

Constant innovation drives us forward, both in terms of fast and flexible development of new machines and products and in terms of the changes that are taking place within our company. Our employees attach great importance to improving all of the processes involved in our business to keep krones highly competitive. Our divisional organisation enables us to put all of our specialists to work in the best possible way to utilise their skills and to bundle their knowledge in each of our company's specialisations.

Vietnam – a burgeoning market

¹⁶ Traffic experts estimate that more than two million mopeds zoom through Ho Chi Minh City each day. Alongside the nation's capital Hanoi to the north, Ho Chi Minh City – formerly Saigon – is now Vietnam's vibrant economic centre. With more than five million inhabitants, it is Vietnam's largest city. It is also one of the world's fastest-growing cities, thanks in part to its modern seaports. Although agriculture remains the most important basis of existence for most Vietnamese, the world's biggest rice exporter and third-largest coffee exporter has undergone rapid industrial and economic growth since the opening of its markets.

Insatiable thirst for growth

As the Vietnamese population becomes more prosperous, its thirst for high-quality beers and soft drinks grows. The beer market alone has been expanding at double-digit rates for years. As a result, Vietnamese beverage producers and international beverage conglomerates alike have been investing in modern production and filling technologies. This trend is a great boon to krones since Vietnam is, in a manner of speaking, krones territory. Our decades-long cooperation and presence in the country is only one of many reasons why krones staff members like Rogelio Tenerife were able to construct the biggest brewery yet for Vietnam's leading brewer »Saigon Beer, Alcohol and Beverages« (Sabeco). krones plans to build another 1-million hectolitre brewery in 2008 in Hanoi.

Beer consumption in Vietnam in million litres

The krones share

Share price climbs more than 42% Dividend to increase more than 30% to €0.70 mdax membership secured

The krones share mdax (indexed)

The krones share registers strong gains

After getting the year off to a slow start, the krones share price – adjusted to account for the recent split – jumped from just under €39 to €60 in the first six months of 2007. The share price was buoyed by generally favourable sentiment on the stock markets as well as strong business development at krones. During the market slump from mid-July to early August the share price dipped to around €50, but it rebounded sharply on the back of strong quarterly earnings. The high for the year, €64.09, was reached on 25 October.

Fears of recession resulted in price declines on the world's equity markets at the start of November and the krones share was caught in the slide. Nevertheless, it finished the year at €54.99, for a strong closing gain of 42.2%. That was far better than the mdax gain of 4.9% for the year. Only six of the 50 mdax shares performed better than krones. Our share also fared better than average compared with industry peers. The Prime Industrial – Deutsche Börse ag's industry index that includes the shares of machinery manufacturers – gained 33.9% in 2007.

The krones share has outperformed the mdax for the past several years. The positive trend reflects our company's stable, strong growth over the years. Only a few mdax companies are showing similarly sustainable growth.

Our shareholders can be pleased with impressive gains once again in 2007. The krones share continued its record-setting streak and closed the year up 42.2%.

The stock markets in 2007

Most of the major international stock markets closed 2007 with slight gains. After starting the year strong, the mood on the world's equity markets was dampened by severe declines on the Chinese stock markets in late February. This brief period of weakness was followed by a strong price rally that lasted until mid-July. The upswing was driven by a high level of liquidity on the markets and recurring takeover dreams. The subprime mortgage crisis in the us brought the rally to an abrupt halt. From August through to the end of the year, the stock markets fluctuated sharply, but the overall trend was sideways. Investor hopes that dropping interest rates would limit the credit crunch's impact on the real economy were the main reason why most of the indices were able to retain some of their earlier gains. As the us dollar weakened, international investors shifted more and more of their money into European shares, with a particular emphasis on Germany. This pushed the dax up 22.3%, for an 8,067 point close for 2007. Thus, Germany's biggest index far outperformed the euro stoxx 50, which gained 6.9% for the year. Despite the subprime mortgage crisis and credit crunch in the us, the Dow Jones Industrial Average still gained 6.4%. Japan's Nikkei index was one of the few losers of 2007, closing the year down 11.1%.

The krones share closed 2007 at €54.99, for a gain of 42.2% over

the start of the year.

Olaf Scholz Head of Investor Relations

krones share price performance compared with the mdax 2001 to 2007

Portrait of the krones share

krones shares are no par value ordinary bearer shares. Each share carries one vote. The stock has been listed and available for trading on all German stock exchanges since 29 October 1984. In fiscal 2007, daily trading volume on the Frankfurt stock exchange and in Xetra trading averaged 118,000 shares. In 2006, the average daily trading volume was 70,000 shares. Besides the mdax, the krones share is also included in the German Entrepreneurial Index gex and others.

A 3-for-1 stock split that had been approved by the annual shareholders' meeting took effect on 22 August 2007. krones' capital stock of €40.0m is now divided into 31,593,072 shares.

Shareholder structure

With 52.4%, the Kronseder family holds the majority stake. Free float is at 47.6%. The us investment firm tiaa holds a stake of around 5.1% in krones, making it the largest free float shareholder.

Earnings per share krones group

krones is openly and actively keeping shareholders informed. In 2007 we expanded our investor relations department further.

Trading of the krones share picked up considerably in 2007.

Key figures for the krones share

Earnings per share up 32.7%

Earnings per share rose €0.80 to €3.25 in fiscal 2007. After the stock split, krones profit is now divided among 31,593,072 shares. The previous years' figures for earnings per share have been adjusted accordingly.

Dividend to increase to €0.70

The Executive Board and Supervisory Board of krones ag will propose to the annual shareholders' meeting on 18 June 2008 a dividend of €0.70 per share. That means the dividend will increase by more than 30%, proportionately to net income. This will be the ninth consecutive dividend increase. The total payout to shareholders for 2007 is €22.1m (2006: €16.9m).

Successful investor relations work secures krones' place on the mdax

krones expanded its investor relations department in 2007 to ramp up communications with investors and analysts. Olaf Scholz came on board as our new investor relations manager in January 2007 to support our ir activities. On 1 October, he took over the helm of the department when former ir chief Hermann Graf Castell assumed the position of Director of Corporate Communications for the krones group.

In 2007, four banks placed our share on their watchlists. That brings the total number of analysts from banks in Germany and abroad that are tracking the krones share to 21. The overwhelming majority of banks took a positive view of our share. At the end of 2007, only one analyst recommended selling our share.

In 2007, krones was presented to investors and analysts at 16 road shows in Germany and abroad, with particular interest coming from Britain, North America, and Scandinavia. krones also participated in six investor conferences. The krones managemen^t and ir staff also conducted some 100 one-on-one meetings with analysts and investors.

Ramping up our investor relations activities has paid off. While the krones share had faced the possibility of elimination from the mdax at the end of 2006, our position at the end of 2007 was considerably more secure. krones improved its position on the Deutsche Börse ag ranking from 56th to 39t^h in terms of market capitalization and from 55th to 48t^h in terms of trading volume.

ber At 3 1 De cem		200 7	200 6	200 5
ber of s hare Num s	(mil ) lion	31.5 9	31.5 9	31.5 9
s (pe ) rat Price ning io /ear		17	16	14
Cash flow sha per re	€	4.73	4.03	3.48
er sh Equ ity p are	€	22.3 6	19.9 0	18.1 1
Earn ings sha per re	€	3.25	2.45	2.00
High	€	64.0 9	38.6 1	34.6 6
Low	€	37.4 0	28.8 3	23.9 9
's clo Year sing pric e	€	54.9 9	38.6 1	28.3 7

Divi den d pe r ord inar y sh are	€	* 0.70	0.53 **	0.47 **

*As per proposal for profit appropriation **Adjusted for share split

Ordi sha nary res	31,5 93,0 72
ide ntifi mbe r (w kn) Germ ities catio an s ecur n nu	633 500 wkn
isin	de00 063 3500 3
Tick mbo l er sy	krn

hgb through 2003, ifrs from 2004 onward

krones compact Dubai's thirst for greatness Ever taller, ever bigger, ever more spectacular: The tiny emirate of Dubai with its 1.4 million inhabitants is demonstrating its economic prosperity through architecture. The emirate's excellent geographical location along the sea and air route from Asia to Europe and its free trade zones have made it one of Asia's biggest commercial centres. Hundreds of skyscrapers already punctuate the Arabian Peninsula's skyline. Construction of the world's tallest building – more than 800 metres tall – is currently underway in Dubai. Offshore, artificial islands with luxury villas are also in the works. Dubai's iconic, sevenstar »Burj al Arab« hotel, standing 321 metres tall and built in the shape of a billowing sail, is one of the world's most luxurious hotels and famous the world over.

The Persian Golf Generation

Dubai serves as krones' base for doing business in the Middle East and Northern Africa. Frank Hollmann and Jörg Mader are our ambassadors on the Persian Gulf. The region's beverage market is small by global comparison, but its annual growth rates of over five percent are impressive by international standards. Carbonated soft drinks make up around 40% of beverage consumption in the region. Water currently accounts for one-fifth of the beverage market and is growing the fastest, at nine percent. Since plastic bottles are becoming increasingly popular here, the Persian Golf is a very attractive market for krones that, like the skyscrapers, just keeps reaching higher and higher.

in million litres

Changes to the shareholdings listed above may have occurred since the date cited above that are not required to be reported to the company. Because the company's shares are bearer shares, the company is generally only aware of changes in shareholdings if these changes are subject to reporting requirements.

The compensation report constitutes part of the consolidated management report.

The appointment and dismissal of Executive Board members is governed by §§ 84 and 85 of the German Stock Corporation Act (AktG). Pursuant to § 6 (1) of the articles of association, the Executive Board consists of at least two members. Pursuant to § 6 (2) of the articles of association, determination of the number of Executive Board members, appointment of regular and deputy members of the Executive Board, execution of their employment contracts, and revocation of appointments are done by the Supervisory Board.

Amendments to the articles of association are subject to the provisions of §§ 179 et seq. of the German Stock Corporation Act. Such amendments are to be resolved by the annual shareholders' meeting (§ 119 (1) No.5 and § 179 (1) of the German Stock Corporation Act). The Supervisory Board is authorized to make amendments that affect only the wording of the articles of association (§ 13 of the articles of association).

Pursuant to § 4 (4) of the articles of association, the Executive Board may, with approval of the Supervisory Board, increase the share capital by a total of up to €10m through the issuance once or repeatedly of ordinary bearer shares against cash contributions up to and including 31 May 2012.

Shareholders must be granted subscription rights to these shares. The Executive Board may exclude the subscription rights of shareholders for any fractional amounts that may arise.

The annual shareholders' meeting on 20 June 2007 passed a resolution authorising the Executive Board, with the approval of the Supervisory Board, to call in treasury shares of krones ag acquired on the basis of the above authorisation without a further resolution by the annual shareholders' meeting.

krones ag has not made any material agreements containing special provisions relating to a change or acquisition of control following a takeover offer.

The company has not made any agreements with members of the Executive Board or company employees relating to compensation in the event of a takeover offer.

Pursuant to § 4 (1) of the articles of association, krones ag's share capital amounts to €40,000,000.00 and is divided into 31,593,072 ordinary bearer shares.

Pursuant to § 20 (1) of the articles of association, each share entitles its holder to one vote in the annual shareholders' meeting. Unless mandatory provisions of the law stipulate otherwise, resolutions of the annual shareholders' meeting are made with a simple majority of the votes cast or, in cases in which the law prescribes a majority of shares in addition to a majority of votes, with a simple majority of the share capital represented in the vote.

Pursuant to § 18 (1) of the articles of association, only those shareholders who register with the company in writing in German or English and provide proof of their shareholding prior to the annual shareholders' meeting are entitled to participate and vote in the annual shareholders' meeting. A special written document confirming the shareholding, issued in German or English by the institution with which the investment account is held, constitutes sufficient proof. This document must refer to the start of the 21st day prior to the annual shareholders' meeting.

Pursuant to § 18 (2) of the articles of association, votes may be cast by proxy. Proxy voting is permissible only if proof of authorisation is submitted in writing, in electronic form pursuant to § 126 a of the German Civil Code (bgb), or in the form of a printed fax. In the annual shareholders' meeting, the meeting's chair can set appropriate time limits for shareholders' questions and comments (§ 19 (3) of the articles of association).

The Executive Board of the company is not aware of any other restrictions relating to voting rights or the transfer of shares.

The company is aware of the following direct and indirect shareholdings in the company's capital that exceed 10% of the voting rights:

Nam e	Dire ct sh are
	of v otin g rig hts, in %

iligu esel lsch aft K ede r mb Bete H rons ngsg	15.0 0

Volk ede er K rons r	10.7 6

ld K ede Hara rons r	10.1 2

At 27 February 2008

Economic environment

Global economic growth at 4.9%
Strong exports driving growth in Germany
Booming machinery sector

г

Historic boom in the machinery sector

Business is booming in the machinery sector. Exports and domestic sales alike remained extremely high in 2007. The German Engineering Federation (vdma) revised its forecast for output growth for 2007 sharply upward over the course of the year. At the start of 2007, experts were predicting output growth of 4%. In May, the vdma raised its growth forecast sharply to 9%. But even that was not enough to keep pace with the real situation, and the vdma bumped up its output forecast again to 11% at the start of October 2007. At year's end, output totalled €181bn, which is an increase of 11% over 2006. This was the first time since 1969 that the industry achieved double-digit output growth.

The vdma expects output to expand again in 2008, by around 5%. If this prediction holds, the industry would see its fifth consecutive year of growth. The last time Germany's machinery sector experienced a growth phase of similar intensity was from 1958 to 1962.

The extremely strong business trend is also reflected in the sector's workforce figures. In April 2007, German machinery and industrial equipment manufacturers employed more than 900,000 people for the first time since 2002. At the end of 2007, the sector's workforce totalled 935,000 (2006: 885,000).

Growing packaging machinery market

krones serves the global market for packaging machinery, which has a volume of around €23.5bn and is growing by around 3% each year, virtually independently of economic cycles. The highest demand for packaging machinery comes from the food industry, which accounts for around 40% of all the machines delivered. The beverage industry accounts for around 20%. The pharmaceutical, cosmetics, personal care, and household chemical industries combined account for another 20%. And the remaining 20% of the packaging machines go to other industries such as tobacco and building materials.

Change in gdp, in % (Germany and European Union)

European Union (eu 25) Germany Source: eu commission

krones operates in a stable growth sector. The market for packaging machinery is growing at an annual rate of around 3%.

Strong global economic growth

The global economy had to wrestle with several adversities in 2007. The price of oil rose more than 60% to around \$96 per barrel last year. In the summer, a massive wave of defaults on the us mortgage market triggered turmoil on the international financial markets. It also had a negative impact on the real economy and slowed growth worldwide at the end of the year. Nevertheless, the global economy grew 4.9% in 2007, for its fifth consecutive growth year.

Because of its homemade credit crunch, the us still faces the biggest economic risks. This was already becoming apparent in 2007, when growth slowed to 2.2% from 2.9% in 2006. At 2.1%, Japan's gdp growth was slower than in 2006.

In the euro area, gdp growth for 2007 was 2.7%, similar to 2006 (2.8%). Alongside increased capital spending, rising private consumption contributed to growth in all euro area countries but Germany.

Although the Chinese government has been trying to check the country's rapid growth with stricter interest rate policies for some time, China's gdp expanded at a doubledigit rate (11.4%) for the fifth year in succession in 2007. China is now the world's third-largest economy. Other emerging economies in Asia ran at full stretch last year. For instance, India's gdp grew 9%.

With 8% gdp growth, Russia maintained its fast pace of previous years. The economies of Latin America continued to recover. The region's gdp was up 6.2% in 2007.

Germany's gdp up 2.5%

Although Germany's economy lost momentum in 2007, gdp growth, at 2.5%, was still higher than had been expected at the start of the year. The euro's sharp rise against other currencies and the considerable increase in Germany's value-added tax slowed the upward trend only slightly. Strong demand from abroad, which reflects the strength of the global economy, was once again the main engine driving economic growth in Germany. Exports accounted for more than half (1.4 percentage points) of total gdp growth in 2007. Capital spending on equipment and construction also increased considerably.

Private consumption, the biggest component of gdp accounting for just less than 60%, developed very poorly in 2007. It was down 0.3% compared with 2006. Rising energy and food prices curtailed German consumers' purchasing power and, consequently, their propensity to consume.

The global economy grew for the fifth consecutive year in 2007.

For krones, the beverage industry is the most important market. We generated around 83% of our revenues through business with breweries, soft drink producers, and mineral springs in 2007. The other 17% of our revenues came from the sale of lines and services to companies in the food, chemical, pharmaceutical, and cosmetics industries.

The greatest demand for packaging systems for the beverage industry is from breweries, soft drink producers, and water bottlers for production in the countries of North and Central America, with the United States topping the list. Japan and China, the world's second and third-largest economies, follow the Americas in terms of demand for packaging machinery, ahead of the countries of Western and Central Europe. While growth rates in the established markets of North America and Europe are now very low, demand in the countries of Asia is growing by as much as 9% each year.

Demand for packaged beverages is rising steadily

Last year, global consumption of packaged beverages increased 4.0% to more than 848 billion litres. According to estimates, global beverage consumption will grow 3.6% each year on average through the year 2010. For krones, this trend is the basis for stable growth in demand for equipment and services for beverage production, bottling, and packaging.

Carbonated soft drinks (csds) were the most popular thirst quencher in 2007. These products accounted for 23.3% of the packaged beverages consumed, ahead of water (22.7%) and beer (20.5%). Milk and dairy drinks were very popular in 2007. Their share of total beverage consumption was 17.2%.

Consumption of packaged water is likely to increase sharply, by 6% on average each year through 2010, on the back of a strong trend toward flavoured and functional waters. Since water is primarily packaged in plastic (pet) bottles and krones is the global leader for pet, the water market promises us continued outstanding opportunities for growth. Global beer consumption is also expected to grow at 3.5% yearly.

In North America and Asia, strong health and wellness trends are boosting demand for energy and sports drinks. Consumption of these beverages is expected to increase by 7.2% and 6% on average, respectively. However, energy and sports drinks' share of global beverage consumption is low, just 1.6%. While milk is expected to grow only 2% each year, the smaller dairy drinks segment is likely to expand by 6.6% on average.

China is thirsty

A regional breakdown of the beverage market reveals China as a rapidly growing market. While China accounted for around 97 billion litres or 11.4% of global consumption of packaged beverages in 2007, that share is likely to expand to 13% by 2010. The region of North and Central America will remain the largest individual market by far, though, despite the fact that its growth rate of 1.8% will likely be half that of the rest of the world on average. By contrast, China, Russia and the former cis states, and the Middle East and Africa will see above-average growth.

Water is one of the most promising markets, offering high potential for our beverage bottling lines and annual growth rates of 6%.

Average annual growth in % through 2010

Global consumption of industrially packaged beverages, in billions of litres, in 2007

Plastic is popular

Around 40% of the beverages filled into containers in 2007 were bottled in plastic (pet) packaging. That puts pet far ahead of the former leader among packaging materials, glass, which now accounts for around a quarter of the packaged beverages consumed worldwide. And pet is expected to continue to lead the pack for future growth. While demand for beverages in glass is expected to grow by only 1.4%, pet growth is expected to be nearly 5%.

This trend benefits krones as we have been concentrating on pet for years. In 2007, more than three quarters of our revenues came from pet.

Around 11% of beverages are packaged in cartons. This packaging segment is likely to grow a solid 4% in each of the coming years, thanks primarily to the growing demand for milk, which is one of the carton's strongest domains. But the volume of milk bottled in plastic is also on the rise.

Cans will likely lose significance. In 2007, they accounted for a scant 13% of the total market. Cans are used primarily for carbonated soft drinks and beer, but consumption of these beverage types is growing slower than average.

krones is represented in all major markets

As a global company, krones has many lucrative sales markets. In the burgeoning regional economies of China, Asia/Pacific, and Russia, demand for packaged foods and beverages is growing steadily. We intend to utilise this potential by expanding our sales activities in these markets. The following is a review of developments in regions that are important to krones.

Total market in 2007

Average annual growth in % through 2010

Global beverage market,

by packaging material, 2007 and 2010 pet will have the highest growth rates among beverage packaging

materials in the years ahead.

The global market for packaging machinery in 2007 by region, in € bn

Pack d be age vera ges	200 7		201	0	ual g th Ann row
in b illio f litr es/i n % ns o	bn	%	bn	%	in %
tral Cen Euro pe	54.3	6.4	55.7	6.0	0.8
Wes tern Eur ope	135 .8	16.0	143 .5	15.0	1.9
East Euro ern pe	35.6	4.2	38.7	4.0	2.8
ia/C al A sia Russ entr	41.6	4.9	48.1	5.0	5.0
h Am tral Nort erica /Cen Ame rica	185 .9	21.9	196 .4	21.0	1.8
th A Sou ica mer	134 .9	15.9	152 .0	16.0	4.0
Chin a	96.8	11.4	122 .7	13.0	8.2
ific ( n) Asia incl. /Pac Japa	116 .3	13.7	131 .2	14.0	4.1
Afri iddl ca/M e Ea st	47.5	5.6	55.7	6.0	5.4
ldw ide Wor	848 .7		944 .0		3.6

Sources: Euromonitor, company's own research

Asia/Pacific €2.06bn (8.8%)

2007: €23.5bn

Russia/cis €1.09bn (4.6%)

The Americas €7.06bn (30.0%)

China

China is one of the most rapidly growing economies in the world. China's population of 1.3 billion alone suggests the great potential for our machinery and lines there. The country's thirst for clean, packaged beverages is increasing steadily.

In 2007, the volume of packaged beverages consumed in China was around 97 billion litres. That is a solid 10% more than in 2006. Consumption of packaged beverages in China is likely to increase by 8% each year on average, to around 122 billion litres by 2010. This growth will occur across all beverage types, but milk and dairy drinks, fruit juices, and teas will experience above-average growth. The largest single market, most recently accounting for 39.4% of total consumption, is beer.

Rising demand for packaged beverages is driving the market for bottling and packaging lines. In 2007 the beverage machinery market in China totalled around €700m. However, krones is not interested in the entire market. We are staying out of standard business involving technologically simple machines since the local competition is strong and prices correspondingly low in that area. Our domains in China are those that require sophisticated turnkey lines, such as those needed for aseptic beverage filling. Since these machines must meet extremely high quality standards, we do not produce new machines in China nor do we plan to in the future. Local production is limited to only spare parts and handling parts. In 2007 we further expanded the activities of our distribution company, which was established in Taicang in November 2006.

The Americas

North America

North America is the largest single market for packaging systems. However, consumption of packaged beverages in the region will grow by just 1.8% in each of the years ahead. Due to the region's high volume of beverage consumption, most recently at 186 billion litres, and the high 6% growth rate for bottled water, it is still an extremely attractive market. Alongside bottled water, pet is also gaining ground here. Carbonated soft drinks are the most popular thirst quencher in the region, accounting for around one-third of the total volume of packaged beverages consumed.

The North American market presents us with some challenges. Although the competition is generally less intense in the us than it is in Europe, the weak us dollar gives local competitors an advantage. We are addressing this challenge by widening our technology lead with more innovations and strengthening our local sales team.

South America

Beverage consumption in South America is expected to increase by around 4% in the years ahead. In 2007, soft drinks accounted for around one-third of the total market of 134 billion litres, followed by water, which accounted for one-quarter of the total. Consumption of bottled water will increase by more than 6% annually through 2010. Consumption of bottled water is especially high in Mexico. Energy drinks like tea and coffee are growing in the double-digits, but will remain niche products in the region.

10.6%

* Sports drinks, energy drinks, ready-to-drink coffee and tea

In China, the market for packaged beverages grew in the double digits in 2007. krones is focusing on high-end business here.

1.1%

2.0%

6.4%

Beverage consumption in the Americas (North, Central, and South America) in 2007 and 2010

Europe

Western Europe

Western Europe is the second-largest market for packaged beverages after North America. Last year 135.7 billion litres were consumed in the region. With growth rates of less than 2%, Western Europe is largely a saturated market. Water and niche segments like dairy drinks and sports drinks offer above-average growth rates.

The global trend toward bottled water has advanced the farthest in the countries of Western Europe. Water, most of which is bottled in plastic, now makes up 30.8% of total beverage consumption in the region. Milk comes in second, with a share of 20.6%.

Central Europe

The situation in Central Europe is very similar to that in Western Europe. Here, too, water is the No. 1 beverage, with a share of 25.7%. Total consumption was 54.2 billion litres in 2007. Beer consumption is high, with a share of 22% of the total, but is likely to decline slightly over the next several years. Water and dairy drinks are growing strong at 3.5% and 4.8%, respectively.

Eastern Europe

In the countries of Eastern Europe, in which more than 35 billion litres of packaged beverages were consumed in 2007, beer is still the most popular thirst quencher by far, with a market share of nearly 30%. More and more, beer is being bottled in pet in Eastern Europe. Here too, bottled water is the fastest growing beverage, with annual growth rates of 5.7%. That is nearly twice the rate of growth for the beverage market as a whole. Therefore, water's share of total beverage consumption will likely grow from 21.9% now to 23.7% by 2010.

Russia/cis

This region continues to offer attractive opportunities for the packaging machinery industry. Beverage volumes in Russia and the cis states will likely increase from 41.5 billion litres in 2007 to around 48 billion litres in 2010, for an annual increase of 5%. Consumption of bottled water will increase sharply, by 9.2% annually. In Russia, more than 80% of bottled water is packaged in pet.

In Russia and the countries of the former Soviet Union, beer consumption accounts for 34.4% of total consumption of packaged beverages. In the cis states, beer is increasingly being bottled in pet. Beer consumption will grow slightly more slowly than the overall beverage market in the future. By contrast, consumption of fruit juices is expected to increase by more than 8%.

2007: 54.2bn litres (estimated)

Average annual growth in % through 2010

csds 17.7%

2007: 135.7bn litres (estimated)

0.5%

2007: 41.5bn litres (estimated)

Average annual growth in % through 2010

Beverage consumption in West-

ern Europe in 2007 and 2010

Consumption of bottled water is growing steadily in Western Europe.

Beverage consumption in Eastern Europe in 2007 and 2010

Alcoholic beverages are popular in Eastern Europe, but bottled water is growing faster.

Beverage consumption in Russia and Central Asia in 2007 and 2010

Consumption of packaged beverages, especially bottled water, is rising fast in Russia.

2007: 35.3bn litres (estimated)

Average annual growth in % through 2010

Asia/Pacific and Japan

Demand for packaged beverages in this sales region is growing at an average rate of 4.2% per year. Water not only occupies the largest share – just under a quarter – of the total volume of 116.4 billion litres. It also has the highest growth rate (7.5%). Milk accounts for 18.8% of total beverage consumption, with demand growing 4.6% annually.

In terms of packaging materials, plastic is steadily gaining ground, growing 5.7% each year. Glass and cans are growing at below-average rates.

Middle East and Africa

Although the Middle East and Africa are racked by political instability, total consumption of 47.5 billion litres in 2007 and 5.4% growth puts them among the emerging markets for packaged beverages. Carbonated soft drinks are the top beverage segment in Africa and the Middle East, with a share of almost 40%.

But here too, water is the fastest-growing beverage segment, with 9.5% growth. Water is also the second-most popular beverage, accounting for 20.2% of total beverage consumption. Plastic bottles are becoming an increasingly popular packaging choice in the region.

Sources: Euromonitor International, vdma, company's own research

management report

Beverage consumption in the Asia-Pacific region in 2007 and 2010

Beverage consumption in Africa and the Middle East in 2007 and 2010

Carbonated soft drinks (csds) are popular in the Middle East and Africa.

Moscow – the heart of Russia

Moscow is Europe's most populous city and the political, economic, and cultural centre of Russia. unesco designated the Kremlin and Red Square a World Heritage site in 1990. St. Basil's Cathedral, with its many onionshaped domes, is the most famous of Moscow's 600 churches. The world's largest country in terms of area, Russia spans more than 9,000 km from the Baltic Sea and the Black Sea across Easter Europe and Siberia to the Pacific Ocean and stretches from the Arctic in the north and east to the Black Sea coast in the south. The majority of this ethnically diverse country's inhabitants live in the European portion, which has asserted itself as a modern industrialised nation since the collapse of the Soviet Union and the transition from a planned economy to a market economy.

A country on a large scale

As the Russian economy has gained strength, industrial output has also increased. The beverage market is reacting to growing demand by rapidly building new breweries and bottling plants. Nadeshda Fomina, head of krones' branch office in Moscow, is reporting annual increases in beverage consumption of more than five percent – and even more than nine percent for water and fruit juices. But alcoholic beverages are still far and away the top seller here. Russia is a high-volume market in two respects. First, beer consumption accounts for one-third of total beverage consumption, the highest share in the world. Second, pet bottles, which are very popular in Russia, come in 1.5 litre and 2.5 litre volumes that correspond to the country's size.

Spirits consumption in Russia, in million litres

krones in figures

Sales up 12.8% to €2,156.0m
Record net profit of more than €100m
Continued sound financial structure

krones group sales, in € m

kosme, our smallest segment contributing 3.4% of overall sales in 2007, increased sales 2.2% to €73.8m.

Further information can be found in the section »Reports from the segments,« which begins on p. 68, and under segment reporting on p. 10 of the consolidated financial statements.

Sales by region

Business in Germany developed very dynamically in 2007, following a sharp increase in revenues in 2006 owing to new legislation for bottle deposits. Sales increased 20.4% to €347.5m. Our new internal logistics division completed a number of significant projects. In the rest of the Central Europe sales region (excluding Germany), sales remained level at €74.2m in 2007.

Western Europe remained the biggest market for krones, with a share of around 19% of total sales. Competition is intense in the region, but we gained market shares in 2007 and increased sales 13.2% to €408.5m. The health and wellness trend, which is increasing demand for »functional« foods and beverages (that is, foods and beverages that may provide a health benefit beyond basic nutrition) is driving growth in Western Europe. These products must be bottled under aseptic conditions. And krones is the technology leader in this area.

In North and Central America, revenues declined 13.3% compared with 2006 to €307.3m. We had generated higher than usual sales revenues in the region in 2005 and 2006 and were therefore prepared for a decline in business volume in 2007. The weak dollar also resulted in more orders going to regional niche providers.

krones continues growth trend

krones ended 2007 with new records for all key performance figures. Sales and earnings were up for the eighth consecutive year, once again demonstrating krones' outstanding position as the world's fast-growing market leader.

Sales up 12.8% year-on-year, to €2,156.0m

In 2007, krones' sales swept well past the €2bn mark, with revenues climbing 12.8% to €2,156.0m. This strong growth was driven primarily by an unabated increase in demand for packaging machinery, a long-standing uptrend that has been almost entirely independent of economic cycles. Since krones offers the entire spectrum of products and services for the construction of bottling plants, we benefited more than proportionately from the trend among international beverage companies toward building new plants in regions like Eastern Europe and Africa.

In rapidly growing economies like China, Vietnam, and Russia, revenues were up sharply over the previous year. Moreover, there are regions around the world, such as South America, in which little has been invested for years and which now have considerable catching up to do. The capital spending freeze is beginning to thaw in these regions. The growing trend toward packaging beverages in plastic (pet) bottles remained strong in 2007. Beer in pet is on the rise in countries like Romania and the cis states. Our business in Germany also benefited from the continued pet boom. Details are under »Sales by region« (p. 53).

Sales by segment

»Machines and lines for product filling and decoration,« our largest and most profitable segment, increased sales 10.0% to €1,806.0m in 2007. The segment contributed 83.8% of consolidated sales.

At €276.1m, revenues in the »Machines and lines for beverage production/process technology« segment outperformed the year-earlier figure by 40% and contributed 12.8% of consolidated sales.

krones group sales, in € m

Sales 2007: €2,156.0^m

Machines and lines for the low output range (kosme) 3.8% (€72.2m)

Machines and lines for beverage production/ process technology 10.3% (€197.3m)

Machines and lines for product filling and decoration 85.9% (€1,641.3m)

hgb through 2003, ifrs from 2004 onward

krones group sales breakdown by segment

Demand for krones lines was high once again in 2007.

Sales

At €143.4m, sales in the Russia/cis (former Soviet Republics) region fell around 6% short of the year-earlier figure. The decline in revenues here is less severe than expected. Initially, Russia had planned to introduce a general import tax in 2007, which resulted in many companies pushing capital spending projects ahead to 2006. krones' sales tripled during this time. Given the extraordinarily high year-earlier figure, we expected a sharp year-on-year decline in revenues. The fact that certain capital goods, including our lines, were spared the import tax in 2007 had a positive impact on our business with Russia.

In the cis states, demand for pet bottling lines for beer was high. We saw growing interest from Kazakhstan in 2007. That was due in part to the fact that the strong economic upturn that has been ongoing in Russia and the cis states for some time is now spreading to other former Soviet republics.

Sales by industry

Sales revenues generated through business with soft drink, water, and juice producers were up 16.8% in 2007 to €1,015.5m (previous year: €869.5m). The impressive revenue gain is primarily a reflection of the continued strong growth of bottled water. This segment's share of total revenues grew 45.5% to 47.1%.

54 55 company situation and business development krones in figures

The highest percentage growth within our customer industries in 2007 was with producers and bottlers of alcoholic beverages. At €769.7m (previous year: €600.0m), revenues with this segment were up 28.3%. A significant share of this increase came as a result of brisk demand from Vietnam, where many new breweries have been and continue to be built. The »alcoholic beverages« segment's share of consolidated sales grew from 31.4% to 35.7%.

The weakest sales development in the past fiscal year was in the non-beverage segment (food, chemicals, pharmaceuticals, and cosmetics). Sales revenues shrank 16% to €370.8m (previous year: €441.4m), due primarily to lower year-on-year sales to the dairy industry. While dairies had invested heavily in years past, the industry held back with capital expenditures in 2007. We expect business with this segment to pick up again. The non-beverage segment contributed 17.2% to consolidated sales (previous year: 23.1%).

Sales in the China/Japan sales region increased in 2007. Compared with 2006, sales revenues were up nearly 48% to €126.9m. More and more large beverage producers are entering the Chinese market and setting up new plants there. krones is concentrating on the high-end segment in China since the local competition for technologically less sophisticated machinery is very intense. Most of the cold aseptic filling lines for beverages like milk and juice that we sold in 2007 went to China.

Our business in Japan picked up speed again in 2007 after a long dry spell. For instance, we delivered an aseptic line to Japan for the Nestle Group.

krones also benefited from strong economic growth in South America. At €202.6m, sales in the South America/Mexico sales region were up 50% on the year-earlier figure of €135.1m. Our subsidiary kosme, which delivers lines for the low output range, is very active in South America. Demand for our machines for producing plastic bottles was especially high in Brazil in 2007.

krones sales revenues in the Africa/Middle East sales region were up a solid 28% to €213.2m. The African continent is becoming increasingly interesting for international beverage companies. Machines and lines with high-quality technology are in demand there. The countries of the Middle East are also attractive markets, although the political risks remain high.

We were very successful in Eastern Europe in 2007. In particular, high demand for turnkey lines for bottling beer in pet pushed sales up 56% to €181.8m. Romania was by far the most dynamic market for krones. But business also picked up considerably in Albania, where the economy as a whole is experiencing rapid growth.

The 14.3% year-on-year decline in sales in the Asia/Pacific region to €150.6m can be attributed to the fact that a number of large-scale projects had made for extremely high sales revenues in 2006. krones was among the companies that benefited from the capital spending boom in Vietnam in 2007, where many new bottling plants are being built.

krones group sales by industry

New orders far exceed revenues

New orders were up 16.9% to €2,300.2m (previous year: €1,967.1m) in 2007. That puts new orders acquired during the reporting period well above revenues (€2,156.0m) and provides a solid basis for continued growth. Strong demand for turnkey lines worldwide was one factor driving the inflow of new orders. Another factor was the fact that our improvements to existing products as well as our new products were well received by customers. The price quality of the orders received was also much improved. Orders inflow was strong from all regions but the us. Order intake from Asia was especially high. For example, we received an order for 20 stretch blow-moulders from a customer in China in the fourth quarter of 2007.

Comfortable orders backlog

Orders on hand at 31 December 2007 totalled €890.9m. That is 19.3% higher than at the same point in 2006 (€746.7m). Accelerated customer demand has enabled us to build up a comfortable orders cushion despite shorter production lead times. The large backlog gives us added planning security for the months ahead.

company situation and business development krones in figures

A look at the abridged income statement of the krones group clearly shows a further considerable improvement in earnings in 2007.

Earnings were up nearly 13% to €2,156.0m for the reporting period, far surpassing the €2bn mark. Our earnings have more than doubled over the past eight years. Our €890.9m orders backlog resulted in a 70.8% increase in inventories of finished goods and work in progress for specific orders to €77.9m.

The ratio of spending for goods and services purchased (€1,186.1m) to total operating revenue (€2,233.9m) is 53.1%. The 18.2% increase in spending for goods and services purchased is due primarily to higher raw materials prices and increased use of temporary workers. The use of temporary workers enables us to react flexibly to spikes in orders without increasing our fixed costs.

Personnel expenses increased 6.4% to €599.5m, far less than proportionately to the 14.2% increase in total operating revenue. As a result, our ratio of personnel expenses to total operating revenue decreased from 28.8% to 26.8%, highlighting the positive impact of krones' flexible employment and pay system.

Other operating income and expenses and own work capitalised also rose less sharply than total operating revenue. This item, which increased only 8.0%, includes in particular travel and freight expenses required for operations. With our export ratio at nearly 84% and sales generated outside Germany up by 11.5%, this less-than-proportionate increase is a positive contribution to increasing efficiency.

krones group new orders, in € m

Order intake was very strong in 2007.

rder han d, kro nes gro up o s on	2007

in € m	2006	747

	2005	691
orde rs ba cklo Our g en sure s
plan ning rity. secu	2004	649

	2003	619

hgb through 2003, ifrs from 2004 onward

New orders and orders on hand krones group earnings situation

200 7	200 6	Cha nge

Sale s rev enu es	2,15 6.0	1,91 0.8	12.8 %
Cha s in inve ies o f fin ishe d go ods and rk in ntor nge wo pro gres s	77.9	45.6	70.8 %
l ope Tota ratin g re ven ue	2,23 3.9	1,95 6.4	14.2 %
ds a nd s hase d Goo ervi ces purc	-1,1 86.1	-1,0 03.3	18.2 %
el ex Pers onn pen ses	-59 9.5	-56 3.3	6.4%
(exp s) an Oth ting inco d ow rk ca pita lised er o pera me ense n wo	-25 0.5	-23 2.0	8.0%
ebit da	197 .8	157 .8	% 25.3
d w dow Dep recia tion ortis atio rite- t as sets , am n, an ns o n no n-cu rren	-47 .6	-49 .8	-4.4 %
ebit	150 .2	108 .0	39.1 %
(ex se) Fina ncia l inc ome pen	3.4	1.6	113 .0%
ebt	153 .6	109 .6	% 40.1
Taxe inco s on me	-51 .8	-32 .1	61.4 %
Net inco me	101 .8	77.5	31.4 %

krones group earnings structure, in € m

krones in figures

krones group net income

krones passed the €100m mark for net income for the first time in 2007. At €101.8m, net income was up 31.4% on the previous year (€77.5m). That means net income grew considerably faster than it had in previous years. The gain in net income was smaller than the gain in ebt because the 2006 tax rate had been only 29.3% due to one-time tax effects. In 2007, the tax rate was 33.7%. In the future, the tax rate will likely be around 30% as krones will benefit from the reform of the corporate income tax law in Germany.

Earnings per share

The company carried out a 3-for-1 share split on 22 August 2007. The resulting volume of krones shares outstanding is 31,593,072. The previous years' figures for earnings per share have been adjusted accordingly. Last fiscal year, earnings per share climbed 32.7% from €2.45 to a news record of €3.25.

krones group ebitda and ebit

Earnings before interest, taxes, and depreciation and amortisation (ebitda) improved 25.3% to €197.8m in 2007 (previous year: €157.8m). The ebitda margin, expressed as a percentage of consolidated sales, rose from 8.3% to 9.2%. Depreciation and amortisation were down €2.2m from the previous year to €47.6m, so that earnings before interest and taxes (ebit) jumped 39.1% to €150.2m (previous year: €108.0m). Our ebit margin improved to 7.0% (previous year: 5.7%).

krones group ebt

Financial income, which comprises primarily profit transfers and the positive interest effect of net cash and cash equivalents, totalled €3.4m for the reporting period (previous year: €1.6m), boosting earnings before taxes 40.1% to €153.6m.

At 7.1%, our ebt margin is far improved over the previous year's 5.7% and falls within our margin target of at least 7%. Internal measures aimed at boosting cost-effectiveness have taken hold. In addition, the strong business trend within the industry enabled us to demand better prices for our machines and lines than we could a year earlier.

hgb through 2003, ifrs from 2004 onward

hgb through 2003, ifrs from 2004 onward *On 31,593,072 shares

krones group net income, in € m

÷

$\overline{\phantom{a}}$

$\overline{\phantom{a}}$

$\overline{\phantom{a}}$

krones group earnings per share, in €

2007
2006		108. 0
2005	90.2
2004		101. 2

2003		105. 1

hgb through 2003, ifrs from 2004 onward

krones improved its margins considerably in 2007.

2007
2006		157. 8

2005	136. 8
2004	146. 5

2003	145. 2

krones group ebitda,

in € m

krones group ebit,

in € m

2007
2006		109. 6

2005	91.2

2004	99.9
2003		111. 4

hgb through 2003, ifrs from 2004 onward

in € m

2007
2006		77.5

2005	63.4
2004	62.0
2003	60.4

krones in figures

	п

Cash flow from operating activities at krones improved by almost one-fifth in 2007, from €86.9m to €104.3m. The increase resulted primarily from higher ebt of €153.6m (previous year: €109.6m) and a smaller increase in trade receivables compared with 2006. Inventories were up €118.4m at the balance sheet date for 2007. This is because the share of large, turnkey plants increased during the reporting period and, consequently, so did inventories of finished goods and works in progress. Working capital decreased to less than 30% in relation to sales.

Tax prepayments had a negative impact on cash flows from operating activities. In the previous year, krones benefited from a one-time tax effect arising from the corporate income tax reform and had to pay only €14m in corporate income taxes. In 2007, those tax payments were around €57m.

We were able to finance our €97.5m in capital spending from our cash flow from operating activities. Capital expenditures were up 25.5% in 2007. The lion's share of this spending, €77.2m, went to property, plant, and equipment. Most of this went into the new technology centre and the logistics centre in Neutraubling and into a new production hall in Nittenau. We also purchased production machinery.

Free cash flow, that is cash flow from operating activities less net capital expenditure, was down in 2007, to €16.1m (previous year: €22.7m). The reason for the decrease was the high level of capital expenditure as mentioned above. We expect free cash flow to improve in 2008 on the back of increasing cash flows from operating activities and unchanged capital expenditures.

In June 2007, we paid our shareholders a total dividend of €16.9m for fiscal 2006.

Taking into account changes due to exchange rates, cash and cash equivalents decreased from €57.7m in 2006 to €53.8m at the end of 2007.

	200 7	200 6	Cha nge
ebt	153 .6	109 .6	40.1 %
Cash flow from ratin tivit ies ope g ac	104 .3	86.9	% 20.0
Cash flow from inve stin tivit ies g ac	-88 .2	-64 .2	37.4 %
h flo Free cas w	16.1	22.7	-29 .1%
flow from fina Cash ncin tivit ies g ac	-18 .6	-18 .9	-1.6 %
cha in ca sh a nd c ash ivale Net nts nge equ	-2.5	3.8
Cha sh a nd c ash ivale g fro cha in ca nts a risin rate nge equ m ex nge s	-1.4	-2.6	-46 .2%
Cash and h eq lent the beg f the iod uiva s at inni cas ng o per	57.7	56.5	2.1%
Cash and h eq lent the end of t he p d uiva s at erio cas	53.8	57.7	-6.8 %

Cash flow statement

krones group financial structure, in € m

hgb through 2003, ifrs from 2004 onward

krones group capital expenditures, in € m

krones group dividend payout, in € m

2007		22.1

2006	16.9

2005	14.7

2004	13.7

2003	11.9

hgb through 2003, ifrs from 2004 onward

krones group cash and cash equivalents, in € m

hgb through 2003, ifrs from 2004 onward

2007

2006		86.9

2005	62.4

2004		95.8

2003		83.4

hgb through 2003, ifrs from 2004 onward

krones group cash flow from operating activities, in € m

The krones group's balance sheet total rose at virtually the same pace as sales revenues and was up 14.4% year-on-year to €1,684.0m at 31 December 2007 (previous year: €1,472.3m).

Property, plant and equipment, intangible assets, and financial assets grew from €374.2m to €422.1m. At just under €350m, property, plant and equipment was up 14.3% (previous year: €305.5m). This increase is due in large part to krones' new technology centre in Neutraubling, which we moved into at the end of 2007.

A detailed presentation of changes in property, plant and equipment, intangible assets, and financial assets can be found on page 12 of the consolidated financial statements.

Non-current assets totalled €475.2m (previous year: €429.7m).

Current assets were up 15.9% to €1,208.8m. Inventories saw the greatest increase, up 30.6% to €505.5m at the 2007 reporting date. This increase is due primarily to the fact that krones had a large share of finished machines and lines that had not yet been delivered as of the reporting date. Trade receivables were up around 8% to €583.7m (previous year: €540.9m), which means they grew far more slowly than sales revenues.

The krones group had cash and cash equivalents of €53.8m at 31 December 2007 (2006: €57.7m).

In all, current assets now account for 71.8% of total assets (previous year: 70.8%).

Equity totalled around €708m, for an equity ratio of 42.0% for the group at 31 December 2007 (previous year: 42.7%). krones' equity ratio is considerably higher than the industry average. Thus, the krones group maintained a very favourable ratio of debt to equity.

Non-current liabilities, primarily provisions for pensions and other provisions, increased from €147.6m to €154.6m. krones had no significant bank debt at the balance sheet date. At €821.5m, current liabilities were 18% higher than a year earlier (€696.0m). This increase resulted largely from higher prepayments received, which were up from €190.2m to €286.0m. Trade payables also increased.

Net cash and cash equivalents (cash and cash equivalents less bank debt) amounted to €52.9m at the balance sheet date (previous year: €56.8m). That gives the company financial leeway for further investment.

Return on capital employed (roce)

The return on capital employed (roce), which is the ratio of ebit to average net tiedup capital (total assets less interest-free liabilities and other interest-free provisions), improved to 20.2% in 2007 (2006: 16.1%). With this, we have achieved our roce target of at least 20%. This was largely thanks to the sharp ebit increase.

	200 7	200 6	200 5	200 4	200 4	200 3
	ifrs	ifrs	ifrs	ifrs	hgb	hgb
Non rent ts -cur asse	475	430	403	382	290	306
of w hich pert y, pl ant and pro ipm ent, inta ngib le as sets equ , and fina ncia l ass ets	422	374	357	335	268	272
Curr ent ts asse	1,20 9	1,04 2	880	828	704	564
of w hich h an d eq lent uiva cas s	54	58	57	75	75	56
Equ ity	708	629	572	526	483	435
l deb Tota t	976	843	711	684	511	435
liab ilitie Non rent -cur s	155	147	155	151	—	—
liab ilitie Curr ent s	821	696	556	533	—	—
Bala shee t tot al nce	1,68 4	1,47 2	1,28 3	1,21 0	994	870

company situation and business development krones in figures

The higher balance sheet total reflects krones' increased business volume.

Assets and capital structure

krones has no significant bank debt and therefore has considerable leeway for investing in continued growth.

hgb through 2003, ifrs from 2004 onward

krones group roce, in %

China – rising with tradition and discipline

⁶⁴ There is no doubt that China is on its way to becoming the world's most important economic power. The world's most populous country, with more than 1.3 billion inhabitants, has risen – and continues to rise – in an unparalleled fashion. The economy has been growing at annual rates of more than 10 percent for years, with all the associated growing pains.

The »Empire of the Middle« has helped shape world culture for nearly 4,000 years. The written Chinese language, which consists of a thousand characters, is considered the oldest writing system still in use today. Moreover, traditional Chinese medicine, cuisine, architecture, and martial arts are all well known around the world. China's influence in all areas of economy, politics, and culture will continue to grow.

Speaking the market's language

China is one of the most promising markets for krones. Volker Kronseder, Chairman of the Executive Board of krones predicted this many years ago: »If there is a market of the future for the beverage industry, it is China.« krones now has four sites in China: branch offices in Beijing, Hong Kong, and Shanghai and a service centre in Taicang. From her office in China's top commercial and port city, Shanghai, krones staff member Lei Lei coordinates the company's market communications. She has one very clear message: Although the volume of beverages sold in China is already impressive – China is long since the world's largest beer producer and bottled water is growing at 9% annually – the low level of per capita consumption means there is still enormous potential for further growth.

Water consumption in China, in millions of litres

8.7 7.5 2007 2004 2005 7.2 2006 6.7

Reports from the segments Profitability far improved in core »product filling and decoration« business Break-even result in »beverage production/process technology«

kosme slips into the red

Return on sales in the »product filling and decoration« segment, in %

The krones group

We are currently the world leader in our core business area – bottling and packaging beverages. It is from this position of strength that we are facing the challenges of the future. Now, we want to master the entire value chain, including all upstream and downstream processes such as process engineering and internal logistics. Although we already offer our customers complete turnkey solutions, we still have to buy in components for process engineering. In the future, we want to provide a broader range of krones products.

With our internal logistics division, we have expanded our portfolio to include downstream material flows, so that we now cover beverage producers' entire process chain from a single source. We intend to further expand this rapidly growing business segment.

The krones group's business activities are divided into three segments.

»Machines and lines for product filling and decoration« comprises the system engineering, labelling, filling, inspection technology, cleaning, plastics, packing and palletising, and conveyor technology divisions.

»Machines and lines for beverage production/process technology« comprises our process engineering, pasteurisation technology, and internal logistics divisions.

kosme is our third segment, providing »machines and lines for the low output range«.

Machines and lines

for p rodu ct fi lling and deco ratio n
inee ring Syst ems eng Labe lling hno logy tec chno logy Insp ectio n te Fillin chno logy g te Clea ning tec hno logy Plas tics tech nolo gy Pack ing a nd p allet ising tech nolo gy hno logy Con r tec veyo

for the low output range (kosme) Labelling technology Filling technology Plastics technology Packing and palletising

technology Conveyor technology

Machines and lines for beverages production/process technology

Brewhouse and filtration technology Information technology Internal logistics Product treatment technology

and ents kro nes gro up s egm
prod uct d ivisi ons

This is our core business area and by far our largest segment, offering machines and complete lines for filling, packaging, labelling, and moving products.

Sales revenues

Sales in this segment increased 10.0% to €1,806.0m (previous year: €1,641.3m) in 2007. Contributing to this growth were high demand for machines for cold-aseptic beverage filling and a continued rise in demand for pet bottle production and filling lines.

Several large-scale orders pushed revenues in Germany up nearly 19% to €319.2m. Business in Germany accounted for 17.7% of segment revenues in 2007, up from 16.4% the previous year.

»Machines and lines for product filling and decoration« contributed 83.8% of consolidated sales (2006: 85.9%).

Segment earnings

»Machines and lines for product filling and decoration« is not only our largest segment. It is also our most profitable one. Because we have streamlined our production processes and price quality was better in 2007, profitability increased considerably despite higher costs for materials. The ebt margin, the ratio of earnings before taxes to sales, advanced from 6.7% to 8.7%. In absolute figures, earnings before taxes increased 43.0% to €157.3m (2006: €110.0m).

New bloc is in high demand

At the ^k trade fair in Düsseldorf, we unveiled yet another krones bloc innovation, the new blow-moulder-filler bloc.

The Contiform s14 pet stretch blow-moulder's modular heating unit is bloc-synchronised with a filler. In this system, the blow-moulded single-use pet bottles are transferred directly from the krones Contiform to the filler. This eliminates long, costly stretches of conveyors and significantly reduces the risk of the pet containers becoming dirty or contaminated.

The enthusiastic response of trade fair visitors gives us confidence that the new blow moulder-filler bloc will seamlessly carry on the successes of the past. Demand for bloc-synchronised equipment has been high for many years now thanks to the many advantages it provides.

10 years of krones Contiform

The krones Contiform, which produces pet bottles, celebrated its 10th anniversary in 2007. Development of the machine began in early 1997 and the first Contiform 16 Compact was unveiled at the drinktec-interbrau trade fair in September of the same year. The machine has evolved steadily since then. Thanks to the strong trend toward pet bottles, plastics technology now contributes a significant share of growth at krones.

Smartronic for the lower output range

Maintaining high standards of safety in filling is equally crucial for smaller breweries and beverage producers. That is why krones developed the Smartronic 714 – a new empty bottle inspector capable of checking up to 18,000 containers per hour – specifically for small and mid-sized customers. Before the bottles are filled, the Smartronic 714 uses state-of-the-art technology to check them for residues, contaminants, and structural integrity. It also saves all the relevant data needed by the bottling plant for product liability purposes.

les ( les), Retu to sa rn o ebt n sa in %	2007					8.7

	2006				6.7

	2005				7.2

	2004				7.5

The Contiform s14 is krones' hottest-selling stretch blowmoulder.

The Smartronic 714 is specially designed for small and mid-sized customers.

Product filling and decoration

This segment includes our brewhouse and filtration technology for customers like breweries as well as our pasteurising technology. Equipment used for treating sensitive beverages like milk and for producing dairy drinks and fruit juices also falls under process technology. krones internal logistics offers systems and services that enable companies to make all of their material flows more efficient.

Sales revenues

Strong sales growth of 40% to €276.1m in 2007 (previous year: €197.3m) highlights just how attractive the market for process engineering is. Many new breweries have been built in regions like Asia and Africa, and krones has supplied the brewhouse and filtration technology for several of them. We also recorded continued growth outside the beer market. The segment increased its share of consolidated sales from 10.3% to 12.8%.

Segment earnings

After chalking up the first successes of our restructuring measures in 2006, the segment improved earnings even further in 2007. Earnings before taxes progressed from –€3.6m to –€0.1m. We are sticking to our strategy of advancing our own value added within and outside the beer market in order to boost margins further.

krones filling and process engineering pilot plant

Our state-of-the-art filling and process engineering pilot plant in Neutraubling provides a scientific basis for new process engineering methods and trials. Here, we treat and fill beverages and other liquid products under live production conditions – for example, to try out new formulas in small batches. In this way, we can work together with our customers to test the production, optimal processing, and filling of their products in a manner specific to each of their needs in a test run.

100th Stromboli delivered

Right in time for the brau 2007 in Nuremberg, krones celebrated a special jubilee – the 100th Steinecker Stromboli wort boiling system sold. This number is even more impressive considering that the Stromboli only hit the market in 2003. The jubilee Stromboli, which was on display at the krones booth, generates 150 hl of hot wort per brew and was delivered to the Bergquell brewery in Löbau, Germany. The system is part of an expansion project in which the mid-sized brewery built a new brewing line.

krones' first solar brewery goes into operation

With the extensive construction approval process now complete, krones' concept for using solar-generated process heat in the privately owned Hofmühl brewery in Eichstätt, Germany, is now being implemented. In the first stage, the two project partners are building a solar heat system with 1,000 m2 of collectors. The system will go into operation in early 2008 and will later be expanded to 3,000 m2. In all, the solar heat energy will replace around 60% of the heating oil previously used to generate process heat. krones is supplying all of the engineering, the process controls, and the collectors. The project is supported by Germany's Federal Ministry for the Environment, Nature Conservation, and Nuclear Safety.

2007			0.0
2006		-1.9
2005	-7.5
2004			0.7

Beverage production/process technology

In the past five years, our Stromboli wort boiling system has become a veritable success story.

Treating and filling beverages and other liquid products under live production conditions for trial purposes.

Our subsidiary kosme offers a product range similar to that of our »machines and lines for product filling and decoration segment«, but for less demanding applications. kosme serves customers with smaller operations, which perfectly complements krones' primary business.

Sales revenues

At €73.8m, sales in our smallest segment were up only slightly over the previous year's €72.2m. The segment contributed 3.4% to consolidated sales in 2007. While demand for turnkey filling lines increased, demand for individual machines declined. As usual, kosme did most of its business in Southern Europe, particularly its home market of Italy. But kosme also received several larger orders from South America.

Segment earnings

The earnings situation at kosme was entirely unsatisfactory in 2007. Earnings before taxes shrank from €3.3m in 2006 to -€3.7m in 2007. kosme deviated from its original strategy of focusing on less sophisticated, standardised machines in 2007, instead accepting orders that required the production of costly prototypes. The Executive Board of krones took action to stop this trend. For 2008, kosme is targeting a break-even result.

kosme is strategically important for krones

kosme provides the perfect complement to krones' product range. In this segment we offer machines and lines that are specially tailored to the production requirements of smaller operations. kosme gives us access to customers who are out of reach for krones' large, high-performance machines. In addition, kosme bolsters our position in sectors outside the beverage industry and in regions like Southern Europe, where krones is not as heavily represented.

kosme offers just the right machines for customers wanting to ease into bottling their beverages in pet. Once the customer's volume increases and pushes the limits of the existing machinery pool, a larger krones filling line becomes interesting.

kosme 's first rotary stretch blow-moulder

Over the past several years, kosme has established a strong market position with its ksb series of stretch blow-moulders for producing pet bottles. The new ksb 6r rotary blow-moulder is a new twist, moving from a linear to a rotary machine concept. This has several advantages for the customer. The ksb 6r can not only produce plastic bottles more quickly. Thanks to a new blowing module, it also uses less energy to do so.

kosme Rollstar, kosme's new labeller

Wrap-around labels provide ample room for advertising and consumer information on all types of containers. The kosme Rollstar automatically applies wrap-around labels to containers of various shapes and materials (glass, plastic, metal). The machine is equipped with an ultra-precise labelling station that cuts the labels and applies them to the containers with either hot or cold glue. Electronic controls in the label reel cutting and advancing unit ensure clean, precise label application.

Isoblock g, the beer filler for small and mid-sized brewers

The newly developed Isoblock ^g filler is designed for lower and mid-range performance and is geared toward regional breweries. We take the various degrees of automation in these breweries into account by allowing customers to choose between mechanical and electropneumatic controls. The original krones valve technology ensures the utmost precision and a low-oxygen filling atmosphere. The newly developed multicapper can handle three different types of closures. This enables breweries to use swing-stopper closures in addition to the customary crowns and ropp caps.

With the ksb 6r stretch blowmoulder, kosme has made the leap from a linear to a rotary machine concept.

kosme Isoblock ^g for lower and mid-range performance

2007
2006			4.6
2005	2.0
2004		4.1

Lower output range (kosme)

78 Lifecycle Service is an integral part of the segments

krones' entire range of maintenance and repair services is handled by »Lifecycle Services (lcs).« The service business secures steady, long-term earnings for krones.

We offer our customers service for the entire life of their machines and lines and guarantee smooth production at all times. The range of products and services at krones »Lifecycle Services (lcs)« is divided into Services and Parts + Software. Our customers can put together their own customised service program to match their specific needs.

lcs Services comprise the following elements:

lcs Parts + Software comprises the following components

Original spares: We deliver original krones spare parts of the highest quality quickly and reliably.
Retrofitting: Fast, efficient retrofitting of lines. We boost machine productivity by incorporating newly developed components or control programs.
SoftsTools: Software that optimises a line's lifecycle by recording and analysing a variety of machine data, for instance, to ensure early detection of maintenance needs.
Materials: High-quality materials that ensure optimum machine and line performance as well as label adhesives from kic krones.
ReSale: A comprehensive support concept for reselling our customers' used machines.
Customers can create their own customised solutions from our Lifecycle Services menu.
Productivity: We use state-of-the-art analysis methods to optimise lines and improve their cost effectiveness.
Maintenance: Traditional maintenance and repair.
Support: Rapid response consulting and troubleshooting assistance (help desk, teleservice).
Design: All-around service for designing new pet containers.
Training: Qualified training for line operating personnel at the krones Academy (see p. 79).

7,35 0

krones lcs bases make for a strong presence. Seven service bases and more than 40 branch offices enable us to offer consistently high quality lcs products and services.

krones Academy training course participants

Course attendance increased to 9,370 in 2007.

Lifecycle Service is still growing

In order to offer even better, faster service to our customers worldwide, we are establishing »service bases« around the world. These bases serve as central points of contact for Lifecycle Service business for our more than 40 offices in various regions. The service bases are not only home to local, fast, and flexible production of spare parts. They also organise the entire range of services for their area.

krones currently has four such bases, in Neutraubling, Germany (Region Europe), the us (Region North America), Brazil (South America), and China. We plan to establish three additional service bases, for the regions of Africa, Asia/Pacific, and Russia/ cis, by the end of 2008.

krones Academy

The krones Academy is an integral part of our Lifecycle Service. There, we train management and operating personnel on the operation of krones machines and lines in practical training courses. In this way, we ensure that operating personnel have a sound mastery of our lines and can use them to achieve the highest performance. The Academy employs more than 50 qualified trainers, who offer instruction at our headquarters in Neutraubling, Germany, as well as at numerous international training centres around the globe. Last year, 9,370 people took part in krones Academy courses.

Las Vegas – desert host to a major industry meetup

⁸⁰ »Welcome to Fabulous Las Vegas« reads the 1959 sign that still welcomes visitors to the city in the Nevada desert. As many as 39 million tourists come each year to try their luck in the countless casinos or to seek entertainment in the myriad shows. But the us' famous gambling paradise doesn't just draw fun-seekers. Every two years, Las Vegas hosts »Pack Expo«, the packaging industry's most important trade fair. The fair offers visitors a look at the industry's latest technological developments. There, krones presents itself to the us market, the world's biggest economy with the world's highest volume of beverage consumption – and the world's highest demand for packaging systems.

A fierce battle for market share

Although the us beverage market appears to be largely saturated and growth in the beer and soft drink segments is essentially stagnant, the North American region is still extremely attractive for krones. That is because, apar^t from the very high total volume of beverages consumed, current trends in niche markets promise long-term success in the battle for market share. For example, water still accounts for less than 20% of the total beverage market, but is growing the fastest at more than 5% each year. Our service engineers in Franklin, Wisconsin, are constantly on the go for krones, updating and expanding the bottling plants of the country's biggest beverage producers. They know

what our North American customers want.

Consumption of near water products in the us in millions of litres

krones has for years been investing heavily in research and development (r&d) in order to keep our innovative power at its highest level and to ensure and expand our technology lead. In 2007 krones invested around 5% of sales revenues in r&d – a large share compared to industry peers.

The krones group employs some 350 people in transforming ideas into innovative systems, machines, and services. Our r&d teams use cutting edge technologies and methods such as usability engineering, which helps our development engineers design operator-friendly systems.

In addition to using the latest technologies, our r&d team collaborates with experts from non-technical fields. For example, psychologists are helping us design an optimal keypad layout for our terminals by observing and analysing equipment operators' eye movements.

Efficient r&d yields innovative products

To be successful in the long term, krones must develop products that meet our customers' needs. That is why our r&d staff is in regular contact with customers, who often provide important ideas and insights for innovations.

Since our machines and lines have to perform a wide range of functions, we include all stakeholders in the value chain in the r&d process from the very beginning. Moreover, krones created the position of operations coach to streamline development processes. The operations coach sorts through the ideas that come in from various specialist units and ensures that they are translated into concrete development projects.

One of the biggest challenges krones' r&d team faces right now is to develop systems that provide more functionality while occupying less space and at the same time maintaining an equal or lesser degree of complexity. Customers want machines that can be operated and serviced by just a few employees to reduce the total cost of ownership – that is, the cost of procuring the equipment plus the ongoing cost of operating it.

Total cost of ownership is one of the most important investment criteria for companies. That is why krones makes low energy and resource consumption a top priority in all of our r&d activities. Another development focus is on reducing downtimes for changeovers and servicing.

At the end of the innovation process, the success of our r&d activities is reflected in new products and satisfied customers. In 2007, krones r&d produced innovative machines and systems in all of our divisions. New or improved products accounted for around one-quarter of consolidated sales. We are also proud of our growing portfolio of patents. Last year, krones submitted applications for 101 new patents and utility models, bringing the total number of patents, patent applications, and utility models to more than 2,100.

Outstanding innovations in 2007

As early as the 1980s, krones had already begun to link the mechanical and electronic functions of multiple machines. The result of this effort was the »krones bloc.« At the ^k trade fair in Düsseldorf, we unveiled yet another bloc innovation, the new blow-moulder-filler bloc.

The Contiform s14 pet stretch blow-moulding machine is equipped with a modular heating unit and bloc-synchronised with a filler. In this system, the blow-moulded single-use pet bottles are transferred directly from the krones Contiform to the filler. That eliminates long, costly stretches of conveyors and significantly reduces the risk of the pet containers becoming dirty or contaminated. The machine is designed for performance ranging from 8,000 to 72,000 containers per hour.

Another development highlight for 2007 was our ultra-light 0.5-litre pet bottle, which weighs in at just 8.8 grams. As much as 90% of the total operating costs of ^a pet bottling line relate to the production of the bottles. And plastic is the biggest cost factor on the blow-moulder. The bottle we developed requires up to 45% less material than conventional pet containers of the same size. The potential long-term cost savings for bottlers is considerable.

The sizes and shapes of the bottles used in the beverage industry vary widely. As a result, operators have to change over the machines' container handling parts frequently. During changeover, the line is stopped and generates no income. For this reason, quick changeovers are of paramount importance. krones' new Raptec quickchange handling parts shorten our customers' changeover times by as much as 30% compared with conventional change parts thanks to quick-release locks that make changeovers possible with just a few manipulations. In addition, Raptec handling parts' open design makes them easy to clean.

We're investing more heavily in research and development than our competitors to further consolidate our technological leadership in the market.

Light but mighty – the ultralightweight 0.5-litre pet bottle from krones.

krones invests around 5% of sales in r&d
Innovations focus on »total cost of ownership«
New krones developments are trade fair highlights

In labelling technology, krones achieved a major innovation with the second generation of the Sleevematic Inline. Sleeves are plastic film tubes that are slipped over bottles and then shrink-fitted to the container's contours to create upmarket appeal. But they are more than a marketing tool. They also serve as a barrier that protects lightsensitive products. The enhanced Sleevematic Inline, which we unveiled to the trade public at the Brau Beviale fair, is more compact, more flexible, and more powerful than its predecessor. Important additional benefits for customers include easier operation and shorter changeover times.

Bottle-to-bottle recycling of pet is a promising market. Soaring oil prices have driven pet prices up sharply. For bottlers and pet preform-makers, using recycled pet (r-pet) to produce plastic bottles is becoming increasingly attractive. Experts anticipate that demand for r-pet will increase sharply in the years ahead. krones offers a compact pet bottle-to-bottle recycling system with which bottlers and converters can produce food-grade pet from used pet bottles. The recycled pet even meets the stringent requirements of the us Food & Drug Administration (fda). Our highly efficient system enables our customers to reduce packaging costs considerably. krones is the only manufacturer in the beverage industry capable of offering the entire recycling process, with washing modules and bottle-to-bottle modules. krones' pet recycling system is designed to produce 500 kg or 1,000 kg of recycled material per hour.

Bottle washers are among the most cost-intensive pieces of equipment in a bottling line. krones' new Variotherm plate heat exchanger system reduces heating costs by as much as 30% since the plate heat exchangers have a heat transfer value that's up to five times better than that of customary countercurrent heat exchangers.

krones has integrated vibration units into its Shakesbeer mashing system to achieve better extract yields in conjunction with shorter mashing times. The improvement also benefits the brewing process. The vibration units are installed in the mashing container and serve as a sort of shaker. The units are driven by an electric vibration motor that is linked to a programmable-logic control system and can be switched on and off automatically in the relevant stages of the mashing process.

The improved Shakesbeer mashing system creates considerable energy and water savings in the brewhouse. The intelligent controls mean the system also requires less operating personnel.

KRONES presented the improved Sleevematic Inline labeller at the Brau Beviale trade fair in Nuremberg.

Risk report Risk monitoring We use a variety of interlinked controlling processes to monitor risks within the krones group. Regular comprehensive reports from the individual business units keep the Executive Board and other decision-makers apprised of all possible risks and deviations from company planning in a timely manner. For high-volume projects, potential risks are examined and evaluated in regular meetings. Employees who identify risks pass their information on promptly through the company's internal reporting system.

Risk planning and management

We use the following tools to plan our business activities and control risk within our risk monitoring and control system.

Annual planning
Medium-term planning
Strategic planning
Rolling forecasts
Monthly and quarterly reports
Capital expenditure planning
Production planning
Capacity planning
Project controlling
Accounts receivable management
Exchange rate hedges
Insurance policies

Risk management organisation

At krones, risk management is formally part of controlling. It is here that all relevant information comes together to be processed and converted into a management tool for the Executive Board. In addition, the various segments and business units also have risk management officers, who are responsible for risk management and for implementing concrete measures such as risk analysis.

Risk controlling

We continually assess and discuss operational and financial risks and document them in monthly reports. The effectiveness of countermeasures that have been implemented is also monitored in controlling processes throughout the year. Apart from sales and all types of expenses, we also look at cash flow as well as material components of our current assets and balance sheet, using the figures to assess risks related to ongoing operations and options with respect to future projects.

88 89 company situation and business development risk report

Risk management system is always evolving

krones is exposed to a variety of risks that are inextricably linked with doing business globally. We continuously monitor all significant business processes to identify risks early and to actively manage and limit them. An internal monitoring and control system with which we record, analyse, and assess all relevant risks is an integral part of the risk management system at krones. We monitor all material risks and any countermeasures already taken in a detailed, ongoing process that entails planning, information, and monitoring. We are continually expanding and improving our risk management system on the basis of practical experience. The system consists of the following modules: risk analysis, risk monitoring, and risk planning and management.

Risk analysis

In order to identify risks early, we continuously monitor all business activities. We conduct a profitability analysis on all of our quotes before accepting an order. For orders that exceed a specified volume, we also conduct a multi-dimensional risk analysis. Apart from profitability, we also individually record and evaluate financing risks, technological risks, and scheduling and other contractual risks.

To manage risks that arise from changes in the market and competitive situation, we create detailed market and competition analyses for all segments and business areas on a regular basis.

We use and ceaselessly evolve an internal system to continuously monitor and control all significant business processes so that we can actively manage risks.

Risks identified on an ongoing basis

Monitoring and control instruments improved further

Financial risks

Information relating to ifrs 7 Financial Instruments: Disclosures.

Because of regional and customer-related diversification, there is no material concentration of risk relating to the following risk categories.

1. Default risk

Default risk is the maximum risk potential arising from each individual position among the financial instruments at the reporting date. Any existing hedges are not taken into account.

1.1 Trade receivables

Credit risk is the threat of economic loss arising from a counterparty's failure to fulfil its contractual payment obligations.

krones bases its management of credit risks from trade receivables on internal policies. A large portion of trade receivables is secured by various, sometimes country-specific hedges. The hedges include for instance retention of title, guarantees and sureties, and documentary credits. In order to prevent credit risk, we also run external credit checks on customers. In addition, there are processes in place for continually monitoring credits that may be at risk of default.

The theoretical maximum credit risk from trade receivables corresponds to the book value.

1.2 Derivative financial instruments

krones uses derivative financial instruments solely for risk management purposes. Not using derivative financial instruments would subject the company to greater financial risks. These instruments essentially cover the risks arising from changes in exchange rates between the euro and the us dollar, the British pound, the Canadian dollar, and the Swiss franc. The risk of default relating to derivative financial instruments is limited to the balance of the positive fair values in the event of a contracting party's default. More on this topic is in the notes to the consolidated financial statements.

1.3 Other financial assets

The maximum credit risk position arising from other financial assets corresponds to the book value of these instruments. krones is not subject to any material default risk arising from its other assets, all of which are current assets.

2. Liquidity risk

Liquidity risk is the threat of a company being unable to sufficiently fulfil its financial obligations.

krones generates most of its cash and cash equivalents through operating activities. These funds primarily serve to finance working capital and capital expenditures. krones manages its liquidity by reserving sufficient cash and cash equivalents and credit lines with banks in addition to the regular inflow of payments from operating activities. The company's liquidity management for operations consists of a cash management system, which is based in part on rolling monthly liquidity planning with a planning horizon of one year. That allows krones to be proactive about any possible liquidity bottlenecks.

Apart from cash on hand, krones' cash and cash equivalents consist primarily of bank balances.

The following overview of maturities shows how the undiscounted cash flows relating to liabilities as of 31 December 2007 influence the company's liquidity situation.

company situation and business development risk report

Risk categories

k in €		Of w hich verd not o ue at th e	Of w hich due by th e fol lowi umb over ng n er of da the date ys at rting repo
		rting repo	up t o	betw een	betw een	than more
	Book valu e	date	90 d ays	90 a nd days 180	180 and days 360	360 days
31 D ec 20 07
Trad eivab les e rec	611, 870	428 ,125	58,1 79	38,3 04	54,0 64	33,1 98
31 D ec 20 06
Trad eivab les e rec	574, 872	378 ,299	52,6 19	41,4 20	50,6 32	51,9 02

in € k	k val Boo ue	Inter est	Cash flow	Inte rest	Cash flow	Inte rest	Cash flow
	at 31 Dec		for 2 008		for		for 2 013
	2007		nt repa yme		2009 -201 2		or la ter
					nt repa yme		nt repa yme
Liabi lities to b anks	810	27	80	78	348	26	382
Liabi lities from leas es	9 7,74	698	971	2,38 7	6,77 8	0	0
Disco d tra de b ills unte	59,0 10	0	43,1 35	0	15,8 75	0	0
Othe r fina ncial liab ilitie s	8,25 3	12	7,72 1	106	532	0	0
	75,8 22	737	51,9 07	2,57 1	23,5 33	26	382

in € k	k val Boo ue	Inter est	Cash flow	Inte rest	Cash flow	Inte rest	Cash flow
	at 31 Dec		for 2 008		for		for 2 013
	2006		nt repa yme		2009 -201 2		or la ter
					nt repa yme		nt repa yme
Liabi lities to b anks	887	29	77	90	337	41	474
Liabi lities from leas es	8,77 6	715	1,08 7	2,39 4	1,71 0	568	5,97 9
d tra de b ills Disco unte	38,6 96	0	25,9 38	0	12,7 58	0	0
Othe r fina ncial liab ilitie s	9,33 4	62	8,82 5	102	509	0	0
	57,6 93	806	35,9 27	2,58 5	15,3 14	609	6,45 3

3. Market risks

Market risk is the risk of fluctuation in the fair value or future cash flows of ^a financial instrument due to changes in market prices.

3.1 Interest rate change risks

krones is not subject to any material risks arising from possible fluctuations in market interest rates.

3.2 Currency risks

Because exports to countries outside the European monetary union make up a significant portion of total sales, we are subject to currency risks. We use currency hedging tools to counter these risks as well as possible. Moreover, we are increasingly making purchasing and sales transactions in euros or the relevant functional currency.

3.3 Share price risks

krones is not subject to any material risks arising from possible fluctuations in share prices.

3.4 Commodity price risks

krones is subject to market price risk relating to its procurement of parts and raw materials for operations. The company uses targeted procurement management and long-term supply contracts to mitigate these risks.

Operational risks

1. Price risks

krones operates in a highly competitive market in which some orders are generated by way of prices that do not cover costs. Fixed-price contracts with customers also entail price risks, as we must bear any additional costs that arise. krones has introduced a three-dimensional order analysis process to minimise this risk. Any inquiry or order that reaches or exceeds a predefined size is assessed on the basis of financial, technical/technological, and regional risks.

2. Procurement risks

krones uses targeted material and supplier risk management to counter procurement risks. With respect to suppliers, we face risks relating to products, deadlines, and quality. A specially designed process for supplier selection, monitoring, and management helps minimise these risks.

3. Cost risks

In order to continually improve our earnings situation, we must optimise our cost structures for the long term. The aim of our cost-reduction measures is not to reduce the number of employees significantly. Instead, krones intends to generate higher sales revenues with approximately the same number of personnel. To achieve this, we are continually improving our production processes.

4. Personnel risks

krones depends on highly qualified employees. One risk we face is that we may have difficulty finding and retaining such employees. We are countering personnel risks with our own education, training, and continuing education programmes.

We also ensure early access to qualified employees through ongoing cooperation with colleges and universities. We regularly employ doctoral candidates and interns. We also use professional personnel consultants to help us locate employees.

The company agreement that entered into force on 1 January 2005 has enabled us to counter personnel cost pressures as our employees have agreed to work longer, more flexible hours in exchange for our promise to secure employment and the future of our German sites until the year 2010.

Summary

Viewed from today's perspective, krones is not exposed to any risks that threaten the Group's continued existence and we do not expect any fundamental changes to the risk situation. To the greatest extent possible, we have taken precautions, with comprehensive measures for preventing, reducing, and hedging risks, to mitigate business risks that could have a substantial impact on krones' assets, financial position, and results of operations.

Corporate social responsibility Sustainability was made an integral part of our organizational structure in 2007

krones ag established a Corporate Social Responsibility (csr) Committee and gave it far-reaching authority. The committee's work serves as the basis for the company's continued, sustainable development. The committee's members are Volker Kronseder (Chairman of the Executive Board of krones ag), Prof. Dr. Ing. Erich Kohnhäuser (Member of the Supervisory Board of krones ag), Kristina Ebenbeck (krones ag's csr officer), Prof. Dr. Thomas Schwartz (professor of business ethics and university chaplain), and Nadja Wollschitt (economics, finance, and social policy consultant for the Hanns Seidel Foundation).

The csr Committee is charged with overseeing compliance with Group-wide csr policies and guidelines. It also will examine all major strategic decisions for their compatibility with csr criteria and collaborate on the development of new products and services.

krones ag's goals and achievements are laid out in our recently published Sustainability Report. The csr report will in future form an integral part of krones' corporate communications alongside our annual and quarterly reports.

Sustainability as corporate strategy

Companies bear many responsibilities relating to their economic performance, the natural environment, and society as a whole. Lasting commercial success is reserved for those who pay due respect to the interests of humankind and the needs of the natural environment. For krones ag, sustainability management means using resources efficiently and prudently, identifying and managing risk, ensuring that our actions are socially responsible, and thus establishing a solid reputation. Steadily improving each of these aspects is a never-ending task for the company's management and for each and every employee. krones ag willingly accepts this responsibility because sustainable operations are essential to our company's continued evolution.

Our corporate social responsibility (csr) guidelines

We assume responsibility for our customers and products
We operate in a sustainable, socially responsible way
We stand for excellent quality and technological leadership in our market
We conserve resources while providing the utmost quality
We are successful because of our employees
We practice clean production
We safeguard the tradition of an open, family enterprise
csr was made an integral part of krones' organizational structure in 2007
Economic success is the company's top priority, but not its only priority
krones invests a lot in its employees

The csr teams, which consist of representatives from a variety of specialist areas within krones ag, develop or work on csr-related issues in close collaboration with the csr core team. The csr core team (Hermann Graf Castell and Kristina Ebenbeck) coordinates the teams and consults with both the csr committee and the Executive Board of krones ag on those projects.

Kristina Ebenbeck, corporate social responsibility officer, and Hermann Graf Castell, head of corporate communications for the krones group

Future-oriented action is a critical aspect not only for developing new markets and products but also for our relationship to the natural environment.

And we and our customers are placing increasing importance on our relationship to the environment as we design our production processes and facilities.

Machine concepts and environmental considerations

Responsible use of energy and raw materials is also an important priority for our customers. It is not uncommon for energy efficiency to be a key consideration for customers choosing a filling line. krones is responding to these demands and pursuing development projects in every business area that facilitate efficient use of resources.

Plastics technology

krones is also active in the field of recycling pet for use in the production of new pet bottles. Bottle-to-bottle recycling – that is, recycling used pet bottles to produce new pet bottles – is a logical link in the process chain for pet bottles. Depending on the type of bottle being produced, up to 50% recycled material can be used to considerably reduce the energy needed to make each pet bottle.

Filling technology

Our filling specialists have devoted special attention to the rinsing process. With the right measures, rinse water can be collected, filtered, and reused. The water that is collected can be reused for the same application or for another use elsewhere, for example, in a heat exchanger. The savings that can be achieved with such closed-loop systems amount to around 2.5 m3 sterile water per hour in a 36,000-bottle-per-hour aseptic system that uses peracetic acid.

Process engineering

Our pet Asept ^d h2^o² technology, which has been available for aseptic filling since 2005, enables our customers to achieve high sterilisation performance in dry sterilisation processes. One benefit of this process is a considerable reduction in water consumption and waste water generation since the sterilising media do not need to be rinsed out with water. The pet Asept ^d system uses no fresh water for the filling process.

Our application for a patent relating to the use of solar heat to generate the hot water used in food and beverage operations is an important milestone in the development of future-oriented energy concepts. The privately-owned Hofmühl Brewery in Eichstätt, Germany, is the first customer to employ this concept. In the first stage, the brewery and krones are building a solar heat system with 1,000 m2 of collectors. The system will go into operation in early 2008 and will later be expanded to 3,000 m2.

company situation and business development corporate social responsibility

Profitability is essential to any company's lasting success. Without profits, a company has no scope for investment in new equipment, employees, or research and development – the very foundations of long-term, sustainable performance. Thus, commercial success is the paramount objective for krones ag and a sound basis from which to assume responsibility for its employees, its business partners, its shareholders, the natural environment, and society as a whole.

Profitable growth

krones' steady, sometimes soaring growth can be attributed not only to its highly qualified, motivated employees and the products they create but also to a prudently executed international expansion. As the world's market leader in packaging machinery for beverages and other liquid products, we maintain sales offices around the world. New technologies and innovative products will continue to serve as the basis for krones ag's tapping of new markets. krones' goal is a clear one: to further expand our market lead and to seize the opportunities offered by long-term growth in the market for beverage filling lines. In concrete figures, krones ag aims to repeat our achievement of the past 10 years, once again doubling sales within the next 10 years.

In the »krones in figures« section of this annual report (p. 50), we provide a detailed look at our 2007 economic performance.

krones' commercial success is fundamental to our ability to assume responsibility.

development, in € m

continue writing it for many

years to come.

Economy Environment

Operating efficiently also means not consuming resources unnecessarily.

hgb through 2003, ifrs from 2004 onward

Political, social, and economic stability depend on trust. That's why it is critical that companies understand and embody their role as part of society and accept their civic and social responsibility. krones attaches high importance not only to its responsibilities for our employees but also to supporting social causes.

Our employees – the company's future

In a company like krones, major importance is attached to maintaining our staff's level of job satisfaction and personal motivation. As an employer, we bear responsibility for almost 9,600 employees worldwide. We promote not only their technical and professional development but also their personal development. Our aim is to foster a lasting, fair, and fruitful partnership with our employees. Because we know that our people are the very backbone of krones' success.

krones is creating jobs

At the end of 2007, krones employed 9,588 people worldwide. That represents a 4.6% (423-employee) increase in our workforce compared with 2006. A large portion of these new jobs were created in Germany.

At 31 December 2007, krones employed 7,857 people in Germany. That is 326 more than at the end of 2006. At the reporting date, 5,101 of these employees were in Neutraubling, 904 in Rosenheim, 810 in Nittenau, 533 in Flensburg, 412 in Freising, and 97 at Maintec GmbH in Collenberg.

Our workforce outside Germany grew by 97 to 1,731.

company situation and business development corporate social responsibility

Cleaning technology

The Parcival caustic filtration system – a membrane filtration system with self-cleaning disk filters – separates contaminants from the post-caustic bath in a closed loop. As a result, the level of surfactants in the post-caustic bath is reduced by 50% while using the same amounts of chemicals and water. This in turn has a positive impact on the surface tension in the cleaning baths and the bottles. The separation of these contaminants also reduces build-up on the interior walls of the bottle washer. The use of Parcival in the post-caustic bath reduces the cod (chemical oxygen demand) in the post-treatment zone and thereby reduces the amount of disinfectant needed.

Packing and palletising technology

Reducing the volume of materials consumed is the primary concern driving the continued development of packaging machines. The Variopac machine concept has been adapted to use as little film as possible and thus can now create packs with a film that is just 40 µm thick instead of the 65 µm thickness required previously. This translates to our customers being able to create more packs with a single film roll.

In the field of palletising, we are focusing on using low-noise components in our single-column robots and gripping elements. Toothed belts, linear guides with ball chains, plastic guides, and casters made of carbon fibre-enhanced plastic are the materials of choice here. Regular noise measurement has enabled us to systematically minimise noise emissions prior to beginning serial production. By using the components listed above, we have considerably reduced noise emissions in our »modular singlecolumn robot« development project.

Society

Unli ke o ther ies, k ron es com pan
ually is co ntin incr easi ng i ts pe r
el in Ger sonn man y.

7,34 5	1,55 2	8
7,25 8	1,43 2	8

Solid training is the foundation for a successful career

krones offers motivated young people an attractive array of vocational training options that prepare them outstandingly well for the challenges of a long career in 25 different fields. Each year, krones invests between €65,000 and €70,000 in each of our trainees.

For the training year starting in 2007, some 1,500 secondary school graduates applied to train at krones. Of these, 96 began their vocational training with us in September 2007. At the end of 2007, krones was training 451 young people in Germany (end of 2006: 418). Of these, 353 were in industrial and technical fields and 98 in commercial fields. krones permanently hired 34 of the 54 young people who successfully completed their vocational training with us in the summer of 2007. The others chose to pursue further training or studies.

krones Training Day is already an established tradition in which young people interested in training with the company and their parents are given an inside look at the options we offer. On 8 September 2007, the event drew numerous visitors to our Neutraubling and Nittenau plants.

»Profil 21« – the new professional training option

At the start of September 2007, twenty-one young people took the first step on a new career path at krones called »Profil 21.« Under this programme, young people can earn not only vocational qualification but also a »Meisterbrief in Mechatronik« (certification as an industrial foreman specialising in mechatronics) in just 4 years. Additional professional development programmes make »Profil 21« graduates highly skilled international service technicians (»experts of service engineering«).

This demanding career path begins with training as a mechatronics technician for field service, which has been condensed to just two-and-a-half years. After successfully completing the professional examination, »Profil 21« participants spend the next 18 months continuing their education to earn the title of »Industriemeister Mechatronik« (certified industrial foreman specialising in mechatronics). Upon completing the programme, the young participants are not only ideally prepared to handle the demands of krones service business. They also have a solid foundation on which to build a career full of interesting development opportunities.

Highly qualified employees

The shortage of specialists in German industry was a major issue in 2007. krones was unaffected by this problem because of its reputation as an attractive employer. Having enough skilled people is also crucial to our ability to offer quality products »Made in Germany.«

More than 15% of our employees in Germany have completed a university-level education. Just less than 22% of our workforce has completed vocational training as a technician, master craftsman, or commercial specialist. The remainder of our workforce has some type of qualified professional training.

Systematic continuing education ensures a highly qualified workforce

For a technology leader like krones, success depends heavily on highly qualified employees and management. In order to ensure this high level of qualifications for the long term, krones human resources development places considerable emphasis on providing employees with regular continuing education and development opportunities. To ensure that we provide our employees with the best possible »fit« in terms of these opportunities, we use one-on-one interviews to determine in advance what knowledge and skills need improvement. Apart from qualification measures relating to our employees' specific fields, we also offer interdisciplinary and intercultural training opportunities such as classes on presentation techniques and language courses.

Further enhancing the management culture at krones was a major focus of our continuing education programme for 2007. As in years past, we offered various training opportunities for management employees to expand and improve their skills in company-specific situations. The training days imparted awareness of various management tools such as goal-setting and argumentation techniques using case studies and role plays with practical relevance. The programme was very popular, drawing 140 participants in 2007. That brings us an enormous step closer to our goal of establishing a uniform, modern understanding of management within the entire Group.

Total workforce 2007: 7,857

Total workforce 2006: 7,531

Workforce structure in Germany

krones expanded its training offerings in 2007.

»We're glad to invest in training because our future depends on our having a skilled, motivated workforce.« (Volker Kronseder)

Social and cultural involvement

The principles of sustainability also apply to our civic involvement. Beyond our business responsibilities, we are also highly committed to our responsibilities with respect to society, culture, the sciences, and academics (corporate citizenship). We focus our efforts on those areas where we feel we can make the greatest impact, primarily through projects in our region. We provide charitable donations and sponsoring as well as knowledge and people. For krones, such civic engagement is part and parcel of corporate social responsibility.

krones ag has for several years provided monetary support to the Zweites Leben e.V. association, which cares for people who have suffered a stroke or head or brain injury. Zweites Leben (German for »second life«) is currently the only association of its kind in Germany and seeks to improve the affected individuals' second life.

For every company, it is important to ensure access to the best and brightest employees early on. That is why, for years, krones has been working closely with universities and offering a range of events at which the company can inform budding scholars about the careers and opportunities available at krones.

We maintained our close, long-standing partnership with the College of Applied Sciences in Regensburg and the University of Regensburg in 2007 through joint projects. We also launched a partnership with the Technical University of Munich in 2007, sponsoring the Institute for Machine Tools and Industrial Management (iwb).

krones has not only given young scholars and scientists a look into industrial practice through practical semesters and thesis assignments. We have also laid the foundations for possible employment within the company. Last year, krones advised 124 degree candidates in projects of practical relevance.

A company also lives from the social commitment of its people. One example of this commitment at krones: Dr. Axel Becher, who heads krones ag's in-house medical service, supports a Children's Village in Lagos, Nigeria, by helping out there and collecting donations in Germany. Donations are packed in Neutraubling and sent directly to krones' regional office in Lagos, where Helmut Rumm, head of the West Africa regional office, and his wife arrange for the donations to be forwarded to the Ijamido Children's Home.

krones ag has long been involved on the cultural scene as well. For instance, the choirs of Neutraubling provided a special cultural highlight in 2006 with a performance of Carl Orff's »Lieder aus Beuren,« better known as »Carmina Burana.« The performance was unique in that it was not held in a conventional concert hall but in a krones production hall. krones cleared out its new 16,500 m2 filler assembly centre and in just two short days transformed it into a concert hall with stages and seating for more than 1,000 people.

Fair pay for good work

krones uses a bonus system to honour our production employees' performance. The employees working in each of our segments are personally responsible for calculated costs and quality, from order acceptance to production to delivery. Previously defined targets with respect to sales and profits are other yardsticks we use to measure and financially reward employee performance.

Apart from the incentives our bonus system offers, our corporate culture and a positive working environment also play a crucial role in our company's success. We are committed to respecting our employees' personal dignity and rights to privacy and to the principle of equal treatment.

Our new general pay agreement was designed to ensure equal treatment. The uniform, fair pay system for all of our company's employees represents a new era in pay policy. The system replaces the old, now outdated system that originated in the 1950s and provided for separate pay structures (wages vs. salaries) for blue-collar and whitecollar workers. The pay structure under the new general pay agreement is identical for all employees and consists of twelve pay groups. The new structure will make possible uniform, comparable work evaluation across all employee groups. The result is a motivating work environment. The details of the new approach will be optimised in a pilot project that was launched in 2006. The new general pay agreement is slated for implementation Group-wide in 2008.

kroki for the little ones

krones is also helping employees balance their careers with their personal life planning. kroki, our in-house child care service, is slated to open in fall 2008 in Neutraubling, Germany, and offers our employees an opportunity to return to work quickly after the birth of a child while at the same time knowing that their little one is in good hands and close at hand.

With a new general pay agreement, krones introduced a uniform, fair pay system.

company situation and business development corporate social responsibility

krones is aware of its responsibility to society. The company has supported social and cultural projects for many years.

Events after the balance sheet date

Strong inflow of orders in the first months of 2008 Consolidation trend in the industry continues

2008 off to a successful start

Strong demand for machines and lines from krones remained unabated in the first two months of 2008. New order bookings and sales were up on the same period of the previous year. That means the company has been spared the effects of the negative impact that the financial and mortgage crisis has had on the global economy.

We won large orders with volumes in the double-digit millions from customers in Western Europe, China, and Vietnam in January and February. Vietnam was already one of krones' strongest markets in 2007.

Salzgitter buys sig Beverages

The consolidation of our industry continued with Salzgitter's buyout of sig Beverages in January 2008. Salzgitter bought into the industry for beverage filling lines and packaging machinery in 2007, when it unexpectedly acquired Klöckner-Werke and, with it, our competitor khs. In its latest move, Salzgitter has expanded its portfolio to include the pet technology that comes with sig Beverages. The pet market is growing strong, ^a trend that has clearly made it interesting for Salzgitter.

krones is the world leader in the pet segment and intends to further strengthen its market position. On the whole, we welcome the consolidation trend in the industry because it will likely have a positive impact on prices.

krones honoured with strategy prize

On 27 March 2008, the Oliver Wyman management consultancy in collaboration with the magazine »Produktion« presented the »Strategiepreis Maschinenbau« (machinery sector strategy awards) for the second time in Berlin. krones was named the winner in the »best strategy process« category. The company impressed the jury with its strong market analysis and its ability to implement its strategy. The jury also cited krones' thorough discussion of strategic alternatives and the company's linking of strategy with financial and operational planning as well as employee targets as exemplary.

krones received several largescale orders in the first months of 2008.

Outlook

Slower global economic growth

The economic outlook for 2008 darkened over the course of 2007. The main culprit here was the mortgage and lending crisis in the United States, which made headlines worldwide as the »subprime crisis«. When the crisis hit, there was still hope that it would shake up the capital markets but have little impact on the real economy. These hopes were soon dashed and the facts now suggest that the crisis is hobbling global economic growth. The International Monetary Fund (imf) is now predicting global economic growth of just 4.1% for 2008, after 4.9% in 2007.

The object of greatest concern is the home of the mortgage crisis, the us. The Federal Reserve is trying to prevent the economy from sliding into recession by cutting interest rates sharply, and economists believe the Fed's efforts will be successful. However, because the real estate market has a significant impact on the world's biggest economy, growth will slow sharply. The imf is forecasting gdp growth at just 1.5% for 2008, following 2.6% in 2007.

Dynamic growth in countries like China and India will prevent the sluggish us economy from bringing the global economy even farther off its years-long growth trend. For China, economists are once again predicting double-digit growth. The imf's forecast is 10%. Growth rates in the emerging economies of Southeast Asia are expected to be more than 8% on average. By contrast, Japan's gdp is expected to develop poorly, growing just 1.5%.

The economic revival in Europe is also expected to continue at a slower pace. The imf is forecasting euro area gdp growth of 1.6%. It was 2.7% in 2007.

Global economic growth will slow considerably in 2008 due to the mortgage crisis and credit crunch in the us.

Financial crisis weighs heavily on global economy
Machinery sector continues to grow
krones targets new records

krones will hold steady on its growth course in 2008.

Waning economic momentum in Germany

German economic growth will not be spared the effects of the us mortgage crisis. That comes as no surprise considering how important exports are to the country's economy. For 2008, there is hope that private consumption will pick up. On the whole, economists at the imf expect Germany's gdp to increase 1.7% this year (2006: 2.5%).

Positive outlook for the machinery sector

The German machinery sector will grow again in 2008, continuing the trend of the past four years. The last time the sector experienced such a long growth spurt was around 50 years ago. The German Engineering Federation (vdma) is forecasting 5% output growth. Exports and domestic demand alike are expected to contribute to this gain.

krones intends to grow faster than the market

The markets that krones serves are growing at around 3% on average each year. In 2008 and beyond, we want to have a more than proportionate share in the general growth of the beverage market and gain additional market shares. As a full-service supplier, we are well poised to achieve this goal.

Moreover, the trend toward plastic (pet) as a packaging material is likely to continue. And since we are the leading supplier of machinery and lines for the production and filling of pet bottles, this trend will support our own growth. An increasing share of krones' sales revenues will come from spare parts and maintenance services provided under our Lifecycle Service. The expansion of our process engineering portfolio also offers krones solid opportunities for growth.

Executive Board expects new sales and earnings records in 2008

krones intends to increase revenues within the corridor of 5% to 10% annually for the long term. Given the strong orders situation in the first months of this year and the positive outlook, the Executive Board expects sales growth in 2008 to be at the upper end of the forecast corridor and expects revenues to pass the €2.3bn mark.

We want to further improve our pre-tax return on sales (ebt margin) in 2008. It was 7.1% in 2007. Since the company benefits from the reform of Germany's Corporate Income Tax Law, after-tax earnings will grow more steeply than earnings before taxes.

Responsibility statement

Statement required by § 37y No. 1 of the German Securities Trading Act (WpHG) in conjunction with §§ 297 (2) Sentence 3 and 315 (1) Sentence 6 of the German Commercial Code (hgb)

»To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated financial statements give a true and fair view of the assets, liabilities, financial position, and profit or loss of the Group, and the consolidated management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group.«

Neutraubling 28 March 2008 krones ag The Executive Board

Volker Kronseder (Chairman)

Hans-Jürgen Thaus Rainulf Diepold (Deputy Chairman)

Werner Frischholz Christoph Klenk

Sun and culture are part of Spain's allure …

Spain has enormous appeal. The Iberian Peninsula, with more than 3000 km of coastline along the Atlantic Ocean and the Mediterranean Sea and numerous island groups, draws more than 50 million tourists each year. Spain is the secondmost visited travel destination in the world after France. The land of olive trees – which provide more than half of the world's olive oil – indulges its residents and visitors with sun, sea, and beaches as well as rich culture and historic architecture. Architecture is one of the things that make Barcelona a popular destination. Spain's most important trading, industrial, and port city is one of Europe's most alluring cities, with Art Nouveau architecture that has earned several places on unesco's World Heritage list, buildings dating back many centuries, and traces of renowned artists throughout the city.

… and so are wine and beer!

Beer Wine

But sun and culture aren't Spain's only draws. Spain is also prime wine country. Rioja, Crianza, and Cava, Spain's version of champagne, are known the world over. Spain's wine production ranks fourth in the world behind Italy, France, and the United States. But for Franz Scheck, krones' man in Barcelona, a different trend is far more significant. Spaniards have recently developed a taste for beer – at the expense of wine. And they've been systematically expanding beer production capacities. Spain is already the third-largest beer producer in Europe behind Germany and the uk and the ninth-largest worldwide. In addition, the trend toward bottled water has already advanced further in sundrenched Spain than in other Western European

countries.

Percentage growth in beer consumption, percentage decline in wine consumption in Spain

Dear readers and shareholders,

In 2007, the Supervisory Board of krones ag continuously oversaw the company's management as prescribed by the law and the articles of association. The Board regularly sought information about the progress of business and the financial situation of the company as well as on the company's risk management and strategy in the form of written and oral reports from the Executive Board, in and outside the regular Supervisory Board meetings. The Supervisory Board also worked with the Executive Board in an advisory capacity.

Four regular meetings of the Supervisory Board were held in Neutraubling, Germany, in 2007. In addition, the members of the Supervisory Board received a written report from the Executive Board about the earnings and financial position of krones ag each month.

One focal point of the Supervisory Board's activities in 2007 was on matters relating to the company's strategic orientation. The Supervisory Board used reports, presentations, and oral discussions with the Executive Board to deal intensively with the expansion of the process engineering and internal logistics business units.

The centrepiece of the first Supervisory Board meeting for the reporting period, which was held on 21 March 2007, was the preliminary consolidated financial statements for 2006. The Executive Board presented and provided detailed explanations for the key figures. The Executive Board also commented on the current business situation, the market, and the competitive situation and presented the outlook for the first half of 2007. Since the krones share was at risk of being removed from the mdax index at the time of the first meeting of the Supervisory Board, the Board also discussed Executive Board proposals on how the share's place on this important index could be secured. The Supervisory Board agreed with the Executive Board that a share split was a suitable tool with which to do so and that a 3-for-1 split should therefore be proposed to the 2007 annual shareholders' meeting.

At its second meeting, in April 2007, the Supervisory Board ratified the 2006 annual financial statements and the consolidated financial statements and management report for fiscal 2006. The Supervisory Board and Executive Board then discussed the agenda for the annual shareholders' meeting, which would be held on 20 June 2007, and the appropriation of profit. The Executive Board also reported to the Supervisory Board on the current business situation.

Dr. Lorenz M. Raith Chairman of the Supervisory Board

The third meeting of the Supervisory Board, on 26 September 2007, was attended for the first time by newly elected employee representatives Jürgen Scholz and Josef Weitzer. The Executive Board presented the company's future growth strategy to the Supervisory Board in detail. The Executive Board explained that a strong position in the technologies upstream and downstream of filling is crucial to krones' future success. The Supervisory Board was given comprehensive facts and figures relating to process engineering and internal logistics. The Board welcomed the growth strategy that was presented as a solid basis from which to continue krones' success.

The Supervisory Board convened for its fourth and final meeting for 2007 on 28 November. The Executive Board presented the financial statements for the third quarter of 2007 and informed the Supervisory Board about the current business situation and outlook for the year 2007 as a whole. However, the main focus of this meeting was on planning for 2008. The Executive Board provided a detailed look at the market and the competitive situation as the basis for plans regarding sales and earnings. Personnel, production, and capital expenditure planning for 2008 were also discussed in depth.

The Supervisory Board concurs with the result of the audit

The annual financial statements of krones ag, the consolidated financial statements, the management report for krones ag, and the consolidated management report prepared by the Executive Board for the period ended 31 December 2007 were examined by the auditors elected by the annual shareholders' meeting, Bayerische Treuhandgesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, and received an unqualified audit report. The audited annual financial statements and consolidated financial statements, the management report for krones ag, and the consolidated management report prepared for the period ended 31 December 2007 were submitted to all members of the Supervisory Board in good time for the members' own review. The audited financial statements and management reports were the subject of the meeting held to approve the financial statements on 28 April 2008. The auditors also participated in the meeting and reported to the Supervisory Board on the results of their review and the areas on which their review focused.

The Supervisory Board took approving note of the audit result. The final results of the examination by the Supervisory Board revealed no cause for objection. The Supervisory Board approves the annual financial statements for krones ag and the consolidated financial statements as well as the Executive Board's proposal for the use of unappropriated profit. The annual financial statements for krones ag are thereby ratified. The Supervisory Board concurs with the Executive Board's proposal regarding the use of unappropriated profit, which provides for a dividend of €0.70 per share for the €40.0m capital stock that is entitled to dividends. The members of the Supervisory Board thank the Executive Board and all employees of the Group for their outstanding work in 2007.

Neutraubling, April 2008 The Supervisory Board

Dr. Lorenz M. Raith Chairman of the Supervisory Board

Report by the Supervisory Board

Members of the Supervisory Board and the Executive Board

Dr. Lorenz M. Raith Chairman * leistritz ag moll ag prüftechnik ag heitec ag

Paul Jogsch** Deputy Chairman until 20 June 2007

Werner Schrödl** Chairman of the Central Works Council Deputy Chairman since 21 June 2007

Ernst Baumann Member of the Executive Board of bmw ag

Herbert Gerstner** Member of the Works Council

Dr. Klaus Heimann** Director of the Youth, Training, and Qualification Policy Division of ig metall *man ag

Dr. Jochen Klein Chairman of the advisory council of döhler holding gmbh * döhler group karlsberg brauerei gmbh

hoyer group

Prof. Dr. Ing. Erich Kohnhäuser *max aicher stahl ag

Norman Kronseder kronseder family office * bayerische futtersaatbau gmbh

Walter Meyer** Director of wirtschafts-akademie-winzer in Regensburg until 20 June 2007 *delphi deutschland gmbh

Dr. Alexander Nerz Attorney

Anton Schindlbeck** Head of sales for lcs

Jürgen Scholz** ²nd authorised representative and treasurer of the ig metall administrative office in Regensburg since 21 June 2007

vdo automobile ag

Josef Weitzer** Chairman of the Works Council since 21 June 2007

Volker Kronseder Chairman

Personnel Management and Social Affairs krones inc., usa Hans-Jürgen Thaus

Deputy Chairman Finance, Controlling, Information Management, and Process Management kurtz gmbh krones inc., usa

Rainulf Diepold Marketing and Sales

Werner Frischholz Materials Management and Production

Christoph Klenk Research and Development, Engineering, and Product Divisions winkler & dünnebier ag

Pursuant to § 8 (1) of the articles of association, six members are elected from among the shareholders in accordance with the German Stock Corporation Act (§§ 96 (1) and 101). Six members are elected by the employees pursuan^t to §§ 1 (1) and 7 (1) Sentence 1 No. 1 of the Codetermination Act.

* Other Supervisory Board seats held, pursuant to § 125 (1), Sentence 3 of the German Stock Corporation Act
**Elected by the employees

In addition, each of the Group companies is the responsibility of two members of the Executive Board.

Executive Board compensation

The structure of the compensation system for the Executive Board was discussed in detail and determined by the Supervisory Board on the basis of the recommendations contained in the German Corporate Governance Code.

These recommendations for members of the Executive Boards of listed stock corporations contain the following compensation elements:

fixed elements
variable elements that are payable annually and based on business performance
variable elements that serve as long-term incentives containing risk factors

The criteria for determining the appropriateness of the compensation include but are not limited to the tasks of the respective member of the Executive Board, his responsibilities, his personal performance and experience, and the economic situation, performance, and outlook of the enterprise, taking into account its peer companies.

For fiscal 2007, the direct fixed remuneration of the five active members of the Executive Board was €2,250k (2006: €2,030k). This fixed amount is the base pay stipulated in the members' contracts and is paid out in equal monthly amounts as a salary. This remuneration is generally reviewed as part of the negotiations relating to the extension of the members' contracts. In addition, the members of the Executive Board received fringe benefits in the form of non-cash benefits (company car) amounting to €85k (2006: €78k).
The variable compensation is based on the achievement of company performance targets. The reference figures are consolidated net income (the primary point of reference) and consolidated sales. The gradation of the targets is determined by the Supervisory Board each year. The variable compensation contains risk elements and is thus not guaranteed compensation. In 2007, the variable compensation amounted to €2,230k (2006: €1,460k).

Compensation report (part of the management report)

Supervisory Board Executive Board

Supervisory Board compensation

Compensation of the members of the Supervisory Board is governed by the articles of association and resolved by the annual shareholders' meeting. For fiscal 2007, the articles of association as amended by the annual shareholders' meeting on 20 June 2007 apply.

The Supervisory Board's compensation consists of two components, an annual fixed remuneration of €10,000 and variable compensation that is dependent on consolidated net income. The Chairman of the Supervisory Board receives twice the amount of the fixed remuneration and the Deputy Chairman of the Supervisory Board receives one and one half times the fixed remuneration amount. The variable compensation is based on consolidated net income per share. Each member of the Supervisory Board receives €2,000 for each €0.30 by which total consolidated net income per share exceeds €1.00.

For fiscal 2007, net income per share comes to €3.25. Thus, the variable compensation for each member of the Supervisory Board comes to €14,000.

Members of the Supervisory Board who belong to special committees within the Supervisory Board receive additional compensation of €10,000 annually as well as flatrate reimbursement for expenses.

The total remuneration paid to members of the Supervisory Board amounted to €343k (2006: €231k) including variable portions totalling €168k (2006: €96k).

Moreover, the members of the Supervisory Board receive a flat €600 fee per meeting as reimbursement for their expenses unless they submit proof of having incurred higher expenses.

Members of the Supervisory Board who belonged to the board for only a portion of the fiscal year receive pro-rated compensation.

The company has no stock option plans or similar securities-oriented incentive systems. Thus, there are also no stock-option plans or similar long-term incentive components of remuneration for members of the Supervisory Board.

In keeping with the recommendations of the Corporate Governance Code, the Supervisory Board adopted a long-term »performance incentive plan« containing risk elements at its meeting on 17 March 2005. Under this provision, each member of the Executive Board receives a performance incentive that is paid out after no less than ten years of service as a member of the Executive Board of krones ag. Board members serving for less than ten years are not entitled to the performance incentive.
The performance incentive is calculated from the relevant Board member's fixed annual remuneration at the time of appointment to the Executive Board and the development of the enterprise value from the time of entry onto the Board to the time at which payment of the incentive comes due.
ebit, ebitda, and consolidated sales are used as the basis for calculating enterprise value. If the current enterprise value is less than it was at the time the member joined the Executive Board, the respective member is not entitled to the performance incentive.
In 2007, provisions of €1,341k (2006: €1,008k) were recognised for the performance incentive.
At krones ag there are and have been no stock-option plans or comparable securities-oriented long-term incentive components of remuneration for Executive Board members.
Pension provisions of €5,773k (2006: €5,594k) were recognised for active members of the Executive Board.

The disclosure of the total compensation made to each board member by name as recommended under Item 4.2.4 of the German Corporate Governance Code and under § 285 (1) No. 9a Sentences 5–9 and § 314 (1) No. 6a Sentences 5–9 of the German Commercial Code (hgb) is not being implemented. It is the belief of krones ag that such disclosure would conflict with personal privacy rights.

Thus, as resolved by the annual shareholders' meeting on 21 June 2006, detailed disclosure of each individual board member's compensation will not be made before the end of the day 20 June 2011, as provided for under § 286 (5) of the German Commercial Code.

On the other hand, details relating to the structure of the compensation are essential for assessing the appropriateness of the compensation structure and whether it results in an incentive effect for the Executive Board.

For former members of the Executive Board and their surviving dependents, payments amounting to €656k (2006: €651k) were made and pension provisions of €672k (2006: €669k) were recognised.

Corporate governance at krones

An integral part of corporate management and supervision

For krones, the German Corporate Governance Code is an integral part of governance. The Code presents essential statutory regulations for the management and supervision (governance) of German listed companies and contains internationally and nationally recognised standards for good and responsible governance. The management of krones takes the principles and rules of corporate governance into account in all business activities aimed at systematically increasing the company's value for the long term.

Declaration of compliance pursuant to § 161 of the German Stock Corporation Act [Aktiengesetz]

The Executive Board and Supervisory Board of krones ag declare that the recommendations of the »Government Commission German Corporate Governance Code« established by the German federal government regarding the management and supervision of German listed companies, in the version dated 14 June 2007, have been and are being complied with in accordance with the German Corporate Governance Code, which is published online at the krones ag website, with the following deviations:
A deductible is currently not included in the d&o policy for the Executive Board and Supervisory Board (item 3.8 of the Code).
Separate disclosure about the basic features of the remuneration system or changes to the system is currently not made at the annual shareholders' meeting but is made in the Annual Report (item 4.2.3 of the Code).
In keeping with the resolution of the annual shareholders' meeting, total compensation of each member of the Executive Board, subdivided according to fixed, performance-related, and long-term incentive components, is not listed individually by each member's name (item 4.2.4 of the Code).
There is currently no nominating committee at krones ag (item 5.3.3 of the Code).
Compensation of the members of the Supervisory Board is currently not reported on an individualised basis. Other compensation – for services provided individually, in particular, advisory or agency services – is currently not reported (item 5.4.7 of the Code).
Shareholdings of the members of the Executive Board and the Supervisory Board of krones ag are not disclosed in the corporate governance report (item 6.6 of the Code).
We are not yet in compliance with the deadline for publication of the consolidated financial statements of krones ag within 90 days of the end of the financial year and publication of the interim reports within 45 days of the end of the reporting period (item 7.1.2 of the Code).

Neutraubling, 31 March 2008

For the Executive Board For the Supervisory Board

Volker Kronseder Dr. Lorenz Raith

Chairman Chairman

corporate governance

120

krones has subsidiaries or representative offices in almost every country around the globe. These companies and offices provide our customers with local contacts who know all the ins and outs of their regional markets. Our local presence worldwide enables us to focus on individual customer needs – our regional representatives are close at hand for our customers and speak their language. KRONES focuses on global partnerships in which our customers can always count on the support of our specialists.

Production sites
Branch/sales offices
lcs bases

121

Commercial glossary

ed e Asso ciat nter prise s	subs idia See ries	s (pe ) rat Price /ear ning io	The for eval hare lcula ted atio is a n im port ant ratio uati s. It is ca pe r ng s by d ividi he s hare e by r sha he lo the ng t pric ning re. T ear s pe wer pe
Cash flow stat nt eme	Stat nt o f inf lows and out flow s of cash tha t sh the and eme ows sou rces of f und s wi thin the fina ncia l yea uses r.		ratio , the bet ter t he v alue
Corp orat e go vern ance	ible and tha ted Resp orat ent ervi sion t is o rien ons corp e m ana gem sup	Retu uity rn o n eq	o of Rati net inco me t uity o eq
	ard long lue c tow -ter reat ion. m va	bef Retu uity taxe rn o n eq ore s	io of s be fore Rat ning tax es to ity. ear ave rage equ
dax	ex ( ). In tsch ktie nind dex aini he 3 0 bi Deu er A cont ng t st G dax gge erm an ies ( me) base d on rket itali d tra ding volu satio com pan ma cap n an	roc e	ed (t Rati o of apit al em ploy otal ets l inte -free to a rest ebit vera ge c ass ess s). liab ilitie d ot her ision prov s an
Defe rred tax item s	ry d iffer s be he t calc ulat ed o n th sult Tem twe en t pora ence axes e re s rted on t tate ts a nd t hose calc ulat ed o n th sult repo ax s men e re s rec og	roi	io of s be fore l cap ital. Retu n inv estm ent. Rat ning tax es to tota rn o ear
	nise d in the fina ncia l sta tem ents und The is to sho er if rss. pur pose w the in r elat ion t o th sult und tax ense e re er if rss. exp	ros	Retu les. Rati o of ning s be fore tax es to sale rn o n sa ear s.
ebit	bef and Earn ings inte rest tax ore es.	Sub sidia ries	All c s th lled, dire ctly dire ctly, by a anie at a ntro or in ent omp re co par due nd/o to m ajor ity i nter est a nt. com pany r com mon ma nag eme
ebit da	ings bef inte rest , tax es, d ciat ion a nd a tisa tion Earn ore epre mor	Tota l deb t	Com bine d te rm f or th ovis ions , liab ilitie d de ferr ed i e pr s, an ncom e ed o n th e lia bilit ies s ide o f the bal she stat et. ance
ebt	bef Earn ings taxe ore s.	king ital Wor cap	rkin l is c alcu late d as ts le sh a nd c ash Wo pita rent g ca cur asse ss ca
Equ ity	Fund de a vaila ble t o th ny b y th by w f co s ma e co mpa e ow ners ay o n s (or es). trib utio d/or inve stm ent plus reta ined ning loss n an ear		ivale nd le ade bles rkin l exp he nts a ss tr . Wo pita es t equ paya g ca ress f ass ng f port ion o ets t hat orki or th ny, i ratin are w e co mpa .e. g ene g sale s rev enu es.
h flo Free cas w	l fig hat indi s th rplu s of cash and h eq lent Fina ncia ure t cate uiva e su cas s (net plus dep ) inco recia tion me	ding a tra syst xetr em	Elec ock ket t radi tron ic st yste mar ng s m.
floa Free t	f the r of Port ion o tota l nu mbe shar utst and ing t hat is av aila ble t es o o the pub lic fo r tra ding
ifrs s	l Fin al Re dard and ards Inte rnat iona anci port ing Stan s. Ac ntin g st cou ed b y th al A and ards rd (i asb) tha issu e Int tion ntin g St Boa t are erna ccou harm ed a nd a ppli ed i lly. onis nter nati ona
ket c apit alisa tion Mar	The valu e of ny b ased he m arke ice o f iss ued and on t t pr out a co mpa ding ord y sh . Cal cula ted by m ultip lying the sha by stan inar rice ares re p the ber of s hare num s.
mda x	Inde x th at co ntai ns t he 5 0 bi st G nd n on-G gge erm an a erm an c omp a (ba e) in nies sed arke pita lisat ion a nd t radi olum the trad i t ca on m ng v tion al se s aft er th inclu ded in t he d ctor ax. ose
cash and ivale Net nts equ	Cash and hig hly l d se und less liab ilitie iqui curi ties t as sets s to er cu rren ban ks.
Non rent ts -cur asse	cted to b med ed i cash , sol d, or Asse ts n ot e vert nto xpe e co nsu , con ex cle ( r). cha d w ithin the 's no l bu lly 1 sine rma nge com pany ss cy usua yea

Technical glossary

(or c old tic) Ase ptic asep beve filli rage ng	m-fr ee f illin g of bev bien Ger t am t te ratu erag es a mpe res.	ll ca Sma vity	Blow ld fo duc bott les w ith a volu f 0.6 litre ing ing mou r pro pet me o s or less
ity Cav	Blow ing ld fo ch b low- ldin achi tret mou r a s mou g m ne.	ile w Ster ater uht	em f ratin rile w by h eati he w hig h Syst g ste ater ng t ater to a or g ene very (ult ure) ra h igh t tem ture erat pera emp
yste cip s m	Clea lace for clea the de o f ma chin ly ning in P . Sys tem ning insi es, s upp line d ta nks. s, an	Tele ice serv	of m achi and line dem Rem ote mai nten s via or I nter net. ance nes mo
csd	Carb ted soft drin k ona	syst uht em	(uht ) in ting of p rodu t ult ra h igh t orde nd Hea cts a erat r to exte emp ure shel f life
ilisa Dry ster tion	ilisa of c hyd de. Ster tion onta iner ing roxi s us gase ous roge n pe	ilisa Wet ster tion	ilisa of c id. Ster tion onta iner ing ceti s us pera c ac
Flas h pa steu risat ion	f he g of helf life Brie atin duct s in orde r to exte nd s pro	Whi rlpo ol	Liqu ids a nd s olid arat ed i n th e wh irlpo ol. s are sep
ieni c de sign Hyg	ign of m achi and line tha t is o ptim ised for hyg iene Des ents nes com pon and y cle anin eas g.	t bo iling Wor	The boi ling of w ith t he a ddit f ho ort w ion o ps.
In-h rhau l ouse ove	hine rhau l do lant Mac t ou in p ove ne a r ma	d la bell Wra ing p-ar oun	licat f lab els t hat glue d ar d th h of App ion o tire girt are oun e en a cont aine d ov erla d at the end r an ppe s.
Insp ecto r	hine tha ami bott les o r oth ntai for dam and Mac t ex nes er co ners age cont ami ts. nan
rnal log Inte istic s	and n of rnal l flow Org anis atio ecut ion, opt imis atio inte teria s in n, ex ma y of ies b tec hnic al sy stem d se rvice com pan y wa s an s.
Larg vity e ca	Blow ld fo duc bott les w ith a volu f up ing ing to 5 r pro pet mou me o litre s.
Laut erin stem g sy	em f rt fr Syst ting the the t gra in. or se para wo om spen
h Mas	Mix of g d m alt a nd w ture ater roun
-bev Non ctor erag e se s	The -bev s for he f ood st im port ant ctor are t kro nes mo non erag e se , chem ical, pha ical, and ndu ceut met ics i strie rma cos s.
euri Past ser	in w hich the she lf lif e of bev r foo d pr odu cts i Syst em erag es o s nde d by of h exte eati way ng.
sept ic pr pet a oces s	ess f ld as c fill of b t bo ttles Proc epti ing s int or co ever age o pe
Rins er	hine in w hich bott les a re fl ushe d w ith w or b low Mac pty ater em n wit h air prio fillin g in orde dust icles and out r to r to part rem ove any

foreign objects.

krones group consolidated financial statements for 2007

lan sh Ba t ce ee	4
ta te t In co m e s m en	6
sh fl Ca st at t ow em en	7
f c ha St at t o in uit em en ng es eq y	8

Notes to the consolidated financial statements

Se t r tin gm en ep or g	10
f c ha in St at t o nt ts em en ng es n on ur re as se -c	12
l d los Ge isc ne ra ur es	16
he ol id ed b ala he No te s t o t at et co ns nc e s	25
No te s t o t he in ta te t co m e s m en	38
he r d isc los Ot ur es	40
Th d a nd rd e S vi Bo Ex ut ive B er ry ar up so ec oa	46
al fo he of ed fit Pr r t iat op os u se u na pp ro pr p ro	47
's Au dit rt or re po	48

		31 D	ec 2 007	31 D ec 2 006
	Note s	k in €	k in €	k in €	k in €

ital k Cap stoc	9	40,0 00		26,9 22
Cap ital rese rves	10	103 ,703		103 ,703
ined ning Reta ear s	11	403 ,562		361 ,953
Oth er re serv es	12	693		826
rofit Gro up p		158 ,402		132 ,732
Min ority inte rest s	13	1,61 0		2,57 8
Equ ity	9		707 ,970		628 ,714

ision s for sion Prov pen s	14	75,1 85		70,7 72
Defe rred liab ilitie tax s	8	10,8 65		8,66 1
Oth rovi sion er p s	15	43,6 86		45,1 68
Liab ilitie s to ban ks	16	730		810
Trad yab les e pa	16	67		399
Oth er fi cial liab ilitie nan s	16	15,8 75		12,7 58
Oth er li abil ities	16	8,19 3		9,01 4
liab ilitie Non rent -cur s			154 ,601		147 ,582
Oth rovi sion er p s	15	110 ,543		92,3 30
ision s for Prov tax es	15	38 25,2		08 30,7
Liab ilitie ban ks s to	16	80		77
Adv ed ts re ceiv ance pay men	16	285 ,996		190 ,223
Trad yab les e pa	16	161 ,216		154 ,201
Curr ent tax liab ilitie s	8	574		2,66 1
Oth er fi cial liab ilitie nan s	16	43,1 35		25,9 38
Oth er li abil ities and rual acc s	16	194 ,686		199 ,885
liab ilitie Curr ent s			821 ,468		696 ,023
Tota l equ ity a nd li abil ities			1,68 4,03 9		2,31 9 1,47

soli dat ed bal e sh Con eet ts anc – a sse	31 D	ec 2 007	31 D	ec 2 006
	k in € Note s	k in €	k in €	k in €
ngib le as Inta sets	58,4 44 2		53,6 19
, pla nd e Prop erty nt a quip t men	349 ,168 3		305 ,513
l ass Fina ncia ets	14,4 97 4		15,0 25
, pla nd e ible nd f cial Prop erty nt a quip t, in tang ts, a inan ts men asse asse	422 ,109 1		374 ,157


Defe rred tax ets ass	6,99 3 8		5,81 3
Trad able ceiv e re s	28,1 89 6		33,9 58
ivab les Non rent tax -cur rece	15,5 63 8		14,8 76
Oth sset er a s	2,33 7 6		884
rent ts Non -cur asse		,191 475		429 ,688


Inve ntor ies	505 ,451 5		387 ,094


Trad ceiv able e re s	583 ,681 6		540 ,914
ivab les Curr ent tax rece	4,33 8 8		1,98 1
Oth sset er a s	61,6 28 6		54,9 15





Cash and h eq lent uiva cas s	53,7 50 7		57,7 27

Curr ent ts asse		1,20 8,84 8		1,04 2,63 1

l ass Tota ets		1,68 4,03 9		1,47 2,31 9

ital stock
$: + 1$ $"$

*Adjusted for share split

soli dat ed i stat ent Con nco me em			2007		2006	flo soli dat ed c ash tate Con w s me

	Note s	in € k	in € k	in € k	in € k
Sale s rev enu es	20	2,15 5,95 3		1,91 0,81 4
of i of f inish ed g ood d wo rk in Incr tory ease nven s an pro gres s		77,9 16		45,5 77
Oth k ca pita lised er o wn wor	21	20,1 44		14,0 46
Oth ting inco er o pera me	22	77,0 58	2,33 1,07 1	54,6 65	2,02 5,10 2


ds a nd s hase d Goo ervi ces purc	23
for Expe mat eria ls, su ppli nd p urch ased ds nses es, a goo		-98 6,49 0		-84 7,38 9		Incr in t rade ivab les a nd o ther ease rece
for ices hase d Expe nses serv purc		-19 9,62	0 - 1,18 6,11 0	5,91 -15 7 -	1,00 3,30 6

						rade able d ot her Incr in t ease pay s an
el ex Pers onn pen ses	24
nd s alar Wag ies es a		-50 0,58 1		-46 7,04 2
Soci al se curi ty co ntrib utio nd e for sion pla nd b enef its ns a xpe nses pen ns a		-98 ,947	-59 9,52 8	-96 ,290	-56 3,33 2


and n of ngib le as and y, pl and Dep recia tion ortis atio inta sets pert ant am pro equ	ipm ent		-47 ,583		-49 ,846
Oth ting er o pera exp ense s	25		-34 7,68 6		-30 0,61 7
ebit			150 ,164		108 ,001


Inve stm ent inco me	26	1,31 8		1,12 5
me f oth and loa lass ified as f cial Inco curi ties inan ts rom er se ns c asse	26	7		20
Oth er in tere st a nd s imil ar in com e	26	10,1 02		6,44 6
Writ e-do on f inan cial ts wns asse	26	0		-4
and sim ilar Inte rest exp ense s	26	-8,0 24		-5,9 52
			3,40 3		1,63 5

bef Earn ings taxe ore s			153 ,567		109 ,636

inco Taxe s on me	27		-51 ,801		-32 ,099

inco Net me			101 ,766		77,5 37
Prof it (lo ss) s hare of m inor ity i nter ests		-96 8		226
Prof it (lo ss) s of s f kr hare hare hold ers o one s gr oup			102 ,734		77,3 11




sha re (d ilute d/ba sic) Earn ings in € per	28		3.25		* 2.45

rade ivab les a nd o ther Incr in t ets rece ease ass


Incr in t rade able d ot her liab ilitie ease pay s an s

	2007	2006
Note s	in € k	in € k

bef Earn ings taxe ore s	153 ,567	109 ,636
and n (re als) Dep recia tion ortis atio am vers	47,5 83	49,8 46
(de se) i Incr ovis ions ease crea n pr	24,0 39	59,0 33
Defe rred tax item cha ised in i nge s rec ogn ncom e	737	3,44 8
d int t inc Inte rest exp ense s an eres ome	-2,0 78	-49 4
eed d lo from the disp osal of n Proc nt a sset urre s an sses on-c s	63	-1,7 34
Oth ash nd e inco er n on-c me a xpe nses	-1,7 53	3,27 1
rade ivab les a nd o ther Incr in t ets ease rece ass
or f not attr ibut able to i ting inan cing act iviti nves es	-51 ,210	-12 2,52 8
in i tori Incr ease nven es	-12 0,43 8	-63 ,327
in t rade able d ot her liab ilitie Incr ease pay s an s
ibut able or f not attr to i ting inan cing act iviti nves es	118 ,825	68,2 09
Cash ed f erat ratin tivit ies gen rom ope g ac	169 ,335	105 ,360
paid Inte rest	-7,8 07	-4,4 66
me t pai d an d re fund eive d Inco axes s rec	,277 -57	,002 -14
Cash flow from ratin tivit ies ope g ac	104 ,251	86,8 92

Cash ngib le as ts to uire inta sets pay men acq	-20 ,323	-17 ,319
eed s fro m th e dis l of i gibl Proc ntan sets posa e as	27	88
Cash ts to uire pert y, pl ant and ipm ent pay men acq pro equ	-77 ,150	-60 ,423
eed s fro m th e dis l of , pla nd e quip Proc erty nt a t posa prop men	200	10,8 65
Cash fina l ass ts to uire ncia ets pay men acq	-58	-4
eed s fro m th e dis l of f cial Proc inan ts posa asse	0	165
Cash sha ated ts to uire res i soci ent ises pay men acq n as erpr	-46 8	-3,5 11
Inte rest ived rece	8,28 1	4,86 0
Divi den ds re ceiv ed	1,31 8	1,12 5
Cash flow from inve stin tivit ies g ac	-88 ,173	-64 ,154

Cash ts to pay men com pany ow ners	-16 ,850	-14 ,743
Cash ice d ebt ts to pay men serv	-77	-3,9 16
Cash ts to leas e lia bilit ies pay men pay	-1,7 47	-43 6
eed s fro m is suin g of min ority inte sha Proc rest res	50	146
Cash flow from fina ncin tivit ies g ac	-18 ,624	-18 ,949

cha sh a nd c ash ivale Net in ca nts nge equ	-2,5 46	3,78 9
from Cha s in cash and h eq uiva lent s ari sing han ates nge cas exc ge r	-1,4 31	-2,5 63

Cash and h eq uiva lent the beg inni f the iod s at cas ng o per	57,7 27	56,5 01

Cash and h eq lent end of t he p d uiva s at erio 7 cas	53,7 50	57,7 27

consolidated financial statements

soli dat ed s Con tate nt me				Pare nt co mpa ny				Min ority	Gro quit up e y
of c han in e qui t ges y								inte rest s
	Capit al	Capit al	ined Reta	Curr ency	Othe r	Grou p	Equi ty	Equi ty
	stock	reser ves	ings earn	diffe s in rence	rese rves	prof it
				equit y
	€k	€k	€k	€k	€k	€k	€k	€k	€k
	Notes 9	Notes 10	Notes 11		Notes 12			Notes 13
At 1 200 6 Janu ary	26,9 22	103 ,703	330 ,141	4,08 2	-1,2 50	105 ,027	568 ,625	3,30 8	,993 571
den d pa nt (€ shar e) Divi 1.40 per yme						-14 ,743	-14 ,743		-14 ,743
solid ated Con net inco me 2 006						77,3 11	77,3 11	226	77,5 37
Allo cati tain ed e arni on t o re ngs			34,8 63			- 34 ,863	0		0
diff Curr ency eren ces				-4,7 24			-4,7 24		-4,7 24
Cha s in the olid ated nge cons gro up			-2,4 09				-2,4 09	-95 6	-3,3 65
Hed ntin ge a ccou g					2,07 6		2,07 6	0	2,07 6
ber At 3 1 De 200 6 cem	26,9 22	103 ,703	362 ,595	-64 2	826	132 ,732	626 ,136	2,57 8	628 ,714
nt (€ e) Divi den d pa 1.60 shar yme per						-16 ,850	-16 ,850		-16 ,850
solid ated Con net inco me 2 007						102 ,734	102 ,734	-96 8	101 ,766
ital Cap incre ase	13,0 78		-13 ,078				0		0
Allo catio ined ning n to reta ear s			60,2 14			-60 ,214	0		0
diff Curr ency eren ces				-5,0 59			-5,0 59		-5,0 59
Cha s in the olid ated nge cons gro up			-46 8				-46 8		-46 8
Hed ntin ge a ccou g					-13 3		-13 3	0	-13 3
ber At 3 1 De 200 7 cem	40,0 00	103 ,703	409 ,263	-5,7 01	693	158 ,402	706 ,360	1,61 0	707 ,970

8 kro nes gro up c ons olid ated fin anc ial s tate men ts – sta tem ent of c han ges in e qui ty	kro nes gro up c ons olid ated fin anc ial s tate men ts – sta tem ent of c han ges in e qui ty
---------------------------------------------------------------------------------------------------------------------------------------------------------------------	----------------------------------------------------------------------------------------------------------------------------------------------------------------

nt r rtin kro nes gr oup seg me epo g	hine Mac s an	d lin es fo r	hine d lin Mac s an	es fo r bev erag e	hine Mac s an	d lin es fo r	solid Con	atio n	kro nes	gro up
	prod uct f illin	d de tion g an cora	duct ion/ pro proc	echn olog ess t y	the low outp	(kos me) ut ra nge
	2007	2006	2007	2006	2007	2006	2007	2006	2007	2006
	in € k	in € k	in € k	in € k	in € k	in € k	in € k	in € k	in € k	in € k

Sale s rev enu es	1,80 6,02 2	1,64 1,33 1	276 ,101	197 ,249	73,8 30	72,2 34			2,15 5,95 3	1,91 0,81 4
Ger man y	319 ,191	269 ,028	25,3 43	16,3 50	2,96 3	3,30 2			347 ,497	288 ,680
of E Rest urop e	632 ,380	580 ,240	123 ,805	79,1 29	51,7 59	45,5 27			807 ,944	704 ,896
Oth er a reas	854 ,451	792 ,063	126 ,952	101 ,770	19,1 09	23,4 05			1,00 0,51 2	917 ,238


Seg t eb men it	152 ,719	107 ,089	86	-3,3 80	-2,6 41	4,29 2			150 ,164	108 ,001


recia tion orti sati nd w rite- dow Dep , am on, a ns	43,6 57	08 46,7	1,35 0	1,05 3	2,57 6	2,08 5			83 47,5	49,8 46

ebt	157 ,295	109 ,979	-72	-3,6 37	-3,6 56	3,29 4			153 ,567	109 ,636
Oth ial n ash ater inco er m on-c me
and exp ense s	2,33 2	-5,4 08	-56 2	2,34 6	-17	-20 9			1,75 3	-3,2 71


Asse ts	1,49 3,32 7	1,29 4,38 3	129 ,248	132 ,107	67,0 76	45,4 44	-5,6 12	-36 ,850	1,68 4,03 9	1,43 5,08 4
Ger man y	1,21 2,29 3	1,00 5,81 1	122 ,062	124 ,372	0	0	8,54 3	-22 ,609	1,34 2,89 8	1,10 7,57 4
of E Rest urop e	95,8 65	122 ,220	7,18 5	7,73 5	67,0 76	45,4 44	-13 ,896	-13 ,835	156 ,230	161 ,564
Oth er a reas	185 ,169	166 ,352	0	0	0	0	-25 8	-40 6	184 ,911	165 ,946


Liab ilitie s	847 ,718	718 ,054	82,5 72	91,1 64	54,9 89	28,3 20	-9,2 10	-36 ,850	976 ,069	800 ,688


ital end iture s for inta ngib le as and Cap sets pert exp pro y,
plan d eq uipm t an ent	93,2 01	73,8 70	334	804	3,93 8	3,06 8			97,4 73	77,7 42
Ger man y	88,3 05	68,3 41	334	800	0	0			88,6 39	69,1 41
of E Rest urop e	804	3,17 5	0	4	3,93 8	3,06 8			4,74 2	6,24 7
Oth er a reas	4,09 2	2,35 4	0	0	0	0			4,09 2	2,35 4

les ( ) ales Retu to s rn o n sa ebt	8.7 %	6.7 %	0.0 %	% -1.9	% -5m0	4m6 %			7m1 %	5m7 %

notes to the consolidated financial statements

of krones group

			Cost				recia Dep	tion orti , am	zati nd w rite- on, a	dow ns		ying Carr	ts am oun
1 Jan 2007	Addit ions	Dispo sals	Recla ssific ation s	Curre ncy	31 De c 200 7	1 Jan 2007	Addit ions	Dispo sals	rsals Reve	Curre ncy	31 De c 200 7	31 D ec 20 07	31 De c 200 6
				differ ences						differ ences

in € k	in € k	in € k	in € k	in € k	in € k	in € k	in € k	in € k	in € k	in € k	in € k	in € k	in € k








132 ,991	20,3 23	102	0	6	153 ,218	79,3 72	15,4 71	75	0	6	94,7 74	58,4 44	53,6 19












624 ,708	50 77,1	8,88 5	0	20 -4,1	688 ,853	319 ,195	32,1 12	8,62 2	0	-3,0 00	339 ,685	349 ,168	305 ,513










18,5 52	58	1,02 4	0	0	17,5 86	3,52 7	0	438	0	0	3,08 9	14,4 97	15,0 25

ngib le as Inta sets
telle l pro hts a nd s imil ghts and 1. In ctua pert y rig ar ri licen ses t ch r ight d as sets o su s an	63,8 57	5,68 5	102	0	6	69,4 46	50,2	20 6,50	2 75	0	6	56,6 53	12,7	93	13,6 37
apit alise d de velo 2. C nt co sts pme	69,1 34	14,6 38	0	0	0	83,7 72	29,1	52 8,96	9 0	0	0	38,1 21	45,6	51	39,9 82
	132 ,991	20,3 23	102	0	6	153 ,218	79,3	72 15,4 71	75	0	6	94,7 74	58,4	44	53,6 19
Prop erty , pla nt a nd e quip t men
nd a nd b uild 1. La ings , inclu ding bui ldin n th ird-p lan d arty gs o	291 ,902	33,2 39	68	9,56 3	-1,6 67	332 ,969	81,9	00 8,02	2 58	0	-73 6	89,1 28	243	,841	210 ,002
2. Te chn ical ipm ent and chin equ ma es	177 ,406	19,9 30	2,15 9	463	-1,3 66	194 ,274	131	,180 7,27	1 2,07 6	0	-1,2 42	135 ,133	59,1	41	46,2 26
ther furn and fixt , off 3. O ipm ent, iture ice e quip t ures equ men	145 ,325	22,2 03	6,65 8	252	-1,0 87	160 ,035	106	,115 16,8 19	6,48 8	0	-1,0 22	115 ,424	44,6	11	39,2 10
4. C onst ruct ion in p rogr ess	10,0 75	1,77 8	0	-10 ,278	0	1,57 5		0 0	0	0	0	0		1,57 5	10,0 75
	624 ,708	50 77,1	8,88 5	0	20 -4,1	688 ,853	319 ,195	32,1 12	8,62 2	0	-3,0 00	339 ,685	349	,168	305 ,513
Fina ncia l ass ets
hare ed e 1. S s in ciat nter prise asso s	17,5 14	55	431	0	0	17,1 38	2,94	9 0	0	0	0	2,94 9	14,1	89	14,5 65
2. In vest ts men	729	0	586	0	0	143		578 0	438	0	0	140		3	151
3. N nt se curi ties on-c urre	153	0	7	0	0	146		0 0	0	0	0	0		146	153
4. O ther lon g-te rm l oan s	156	3	0	0	0	159		0 0	0	0	0	0		159	156
	18,5 52	58	1,02 4	0	0	17,5 86	3,52	7 0	438	0	0	3,08 9	14,4	97	15,0 25
Non rent ts -cur asse	776 ,251	97,5 31	10,0 11	0	-4,1 14	859 ,657	402	,094 47,5 83	9,13 5	0	-2,9 94	437 ,548	422	,109	374 ,157

	nd a nd b uild ings 1. La ,





	Fina ncia l ass ets







consolidated financial statements

Consolidated statement of changes in non-current assets in 2007

soli dat ed s f ch Con tate nt o me ang es 1 Jan 2006 in n t as sets in 6 on- cur ren 200 in € k ngib le as Inta sets	Addit ions in € k	Dispo sals	Recla ssific ation s	Curre ncy differ ences	31 De c 200 6	1 Jan 2006	Addit ions	Dispo sals	rsals Reve	Curre ncy	31 De c 200 6	31 D ec 20 06	31 De c 200 5

										differ ences

		in € k	in € k	in € k	in € k	in € k	in € k	in € k	in € k	in € k	in € k	in € k	in € k


telle l pro hts a nd s imil ghts and 1. In ctua pert y rig ar ri
licen ses t ch r ight d as sets 57,6 92 o su s an	7,85 7	1,62 7	0	-65	63,8 57	45,0 16	6,78 2	1,53 9	0	-39	50,2 20	13,6 37	12,6 76

apit alise d de velo 2. C nt co sts 60,3 40 pme	9,46 2	668	0	0	69,1 34	18,5 50	11,2 70	668	0	0	29,1 52	39,9 82	41,7 90

118 ,032	17,3 19	2,29 5	0	-65	132 ,991	63,5 66	18,0 52	2,20 7	0	-39	79,3 72	53,6 19	54,4 66

Prop erty , pla nt a nd e quip t men
nd a nd b uild
1. La ings , inclu ding bui ldin n th ird-p lan d arty 274 ,025	18,1 96	10,0 77	11,2 07	-1,4 49	291 ,902	77,9 26	6,98 7	2,29 7	0	-71 6	81,9 00	210 ,002	196 ,099
gs o
2. Te chn ical ipm ent and chin 170 ,253 equ ma es	14,4 74	9,17 2	3,38 2	-1,5 31	177 ,406	131 ,069	10,1 50	8,70 5	0	-1,3 34	131 ,180	46,2 26	39,1 84

ther ipm furn iture and fixt , off ice e quip 3. O ent, t 148 ,779 ures men equ	18,3 10	22,3 26	1,59 9	-1,0 37	145 ,325	113 ,816	14,6 57	21,4 42	0	-91 6	106 ,115	39,2 10	34,9 63

4. C onst ruct ion in p 16,8 21 rogr ess	9,44 3	0	-16 ,188	-1	10,0 75	0	0	0	0	0	0	10,0 75	16,8 21

609 ,878	60,4 23	41,5 75	0	-4,0 18	624 ,708	322 ,811	31,7 94	32,4 44	0	-2,9 66	319 ,195	305 ,513	287 ,067
Fina ncia l ass ets

hare ed e 1. S s in ciat nter prise 17,5 14 asso s	0	0	0	0	17,5 14	2,94 9	0	0	0	0	2,94 9	14,5 65	14,5 65

729 2. In vest ts men	0	0	0	0	729	578	0	0	0	0	578	151	151

3. N nt se curi ties 271 on-c urre	0	118	0	0	153	-6	4	-6	4	0	0	153	277
4. O ther lon rm l 193 oan s	4	41	0	0	156	0	0	0	0	0	0	156	193
g-te
18,7 07	4	159	0	0	18,5 52	3,52 1	4	-6	4	0	3,52 7	15,0 25	15,1 86

Non rent ts 746 ,617 -cur asse	77,7 46	44,0 29	0	-4,0 83	776 ,251	389 ,898	49,8 50	34,6 45	4	-3,0 05	402 ,094	374 ,157	356 ,719

consolidated financial statements

Consolidated group

Besides krones ag, the consolidated financial statements for the period ended 31 December 2007 include all material domestic and foreign subsidiaries in which krones ag holds more than 50% of the voting rights.

krones ukraine llc, Kiev, Ukraine, in which krones ag holds a direct 100% stake, was established in fiscal 2007.

maintec ges.m.b.h., Dorf an der Pram, Austria, and maintec service food, Sofia, Bulgaria, were also established. krones ag holds a 51% stake in each company.

The first-time consolidation of the new shares was effected at the time of establishment.

A complete presentation of investment holdings will be published in the electronic Federal Gazette (elektronischer Bundesanzeiger).

Consolidation principles

The separate financial statements of the companies included in the consolidated financial statements are prepared in accordance with uniform accounting policies and were all prepared as of the reporting date of the consolidated financial statements.

For companies that were acquired after 1 January 2004, acquisition accounting is performed in accordance with ifrs 3 (»Business combinations«), under which all business combinations must be accounted for using the »purchase method« of accounting, whereby the acquired assets and liabilities are to be recognised at fair value.

Any amount by which the cost of acquisition exceeds the interest in the fair values of assets, liabilities, and contingent liabilities is recognised as goodwill and subjected to regular impairment tests. Negative goodwill is immediately recognised in profit and loss. Goodwill arising before 1 January 2004 is still recognised in reserves.

Shares in the equity of subsidiaries that are not held by the parent company are reported as »minority interests«.

Inter-company receivables, liabilities, provisions, revenues, and expenses between consolidated companies are eliminated in the consolidation process.

Inter-company profits from deliveries effected or services rendered between Group companies are not eliminated because the amounts arising from these transactions are not material for the presentation of the group's assets, financial position, and results of operations.

Legal basis

The consolidated financial statements of krones ag (»krones group«) for the period ended 31 December 2007 have been prepared in accordance with the International Financial Reporting Standards (ifrs) of the International Accounting Standards Board (iasb), London, applicable on the reporting date, including the interpretations issued by the International Financial Reporting Interpretation Committee (ifric) as adopted by the European Union. No early application was made of ifrss that had not yet entered into force or their interpretations. A list of these standards and interpretations and of standards being applied for the first time is on p. 44.

Minority interests in group equity are stated on the balance sheet as a special item within equity. Profit or loss shares attributable to minority interests are recognised on the income statement as part of consolidated earnings. The shares of consolidated earnings allocated to equity holders of the parent company and to minority interests are presented separately.

Minority interests have been added to the statement of changes in equity.

The following explanatory notes comprise disclosures and remarks that, under ifrs, must be included as notes to the consolidated financial statements in addition to the balance sheet, income statement, statement of changes in equity, and cash flow statement.

The »nature of expense« method has been used for the income statement. The group's reporting currency is the euro.

General disclosures

Accounting policies

The separate financial statements of krones ag and its domestic and foreign subsidiaries have been prepared using uniform accounting policies, in accordance with ias 27.

Some discretion has been used in preparing the consolidated financial statements, particularly in terms of measurement of non-current assets, inventories, receivables, pension provisions, and provisions, because their preparation requires some critical estimates and forecasts.

Intangible assets

Purchased and internally generated intangible assets, excluding goodwill, are recognised pursuant to ias 38 if it is sufficiently probable that the use of the asset will result in a future economic benefit and the cost of the asset can be reliably determined. They are stated at cost and amortised systematically on a straight-line basis over their estimated useful lives. The amortisation of intangible assets is carried out over a useful life of between three and five years and recognised under »Depreciation and amortisation of intangible assets and property, plant and equipment.«

Research and development costs

Development costs of the krones group are capitalised at cost to the extent that costs can be allocated reliably and the technical feasibility and a future economic benefit as a result of their use are probable. According to ias 38, research costs cannot be recognised as intangible assets and are, therefore, recognised as an expense in the income statement when they are incurred.

Goodwill

No goodwill was acquired in 2007.

Property, plant and equipment

Property, plant and equipment are accounted for at cost less scheduled depreciation on a straight-line basis over their estimated useful lives. The cost of internally generated plant and equipment comprises all costs that are directly attributable to the production process and an appropriate portion of overheads. Borrowing costs are not recognised as »cost«. A revaluation of property, plant and equipment pursuant to ias 16 was not carried out.

Currency translation

The functional currency for krones ag is the euro.

The financial statements of the consolidated companies that are denominated in a foreign currency are translated on the basis of the functional currency concept (ias ²¹) using a modified closing rate method. Because the subsidiaries operate primarily independently in the economic environment of their respective countries, the functional currency is always the relevant local currency for each subsidiary. Thus, in the consolidated financial statements, assets and liabilities are translated at the closing rate as on the reporting date, while income and expenses from the financial statements of subsidiaries are translated at average annual rates.

Any exchange differences resulting from these different rates in the balance sheet and income statement are recognised directly in equity. Exchange differences resulting from the translation of equity using historical exchange rates are also recognised directly in equity.

In the separate financial statements of krones ag and its subsidiaries, receivables and liabilities in foreign currencies are translated using the exchange rate at the time of the transaction and exchange differences are recognised in profit or loss at the closing rate. Non-monetary items in foreign currencies are stated at historical cost.

Exchange rate differences compared with the previous year arising from acquisition accounting are recognised directly in equity in other retained earnings.

The exchange rates of those currencies that have a material impact on the Group's financial statements have moved against the euro as follows:

		Clos	ing rate	Ave rage	rate
		31D ec20 07	31D ec20 06	2007	2006
us d olla r	usd	1.47 2	8 1.31	1.37 1	1.25 6
sh p d Briti oun	gbp	0.73 5	0.67 2	0.68 4	0.68 2
s fra Swis nc	chf	1.65 6	1.60 8	1.64 3	1.57 3
ish k Dan rone	dkk	7.45 8	7.45 6	7.45 1	7.45 9
Can adia n do llar	cad	1.44 5	1.52 9	1.46 8	1.42 4
Japa nese yen	jpy	165 .100	156 .700	161 .250	146 .020
ilian l Braz rea	brl	2.62 1	2.81 4	2.66 4	2.73 6
Chin inbi (yu an) ese renm	cny	10.7 49	10.2 92	10.4 18	10.0 10
ican Mex pes o	mxn	16.0 38	14.3 04	14.9 70	13.6 79
Ukra inia n hr ia yvn	uah	7.42 5	6.37 3	6.93 7	6.09 0

Because there is no active market for the financial assets, they are recognised at amortised cost.

The fair values and carrying amounts are based on market rates and observable ongoing market transactions.

Transactions against cash settlement are accounted for using the settlement date. Derivative financial instruments are accounted for using the trade date.

Net gains and losses include impairments and measurement changes for derivative financial instruments and are explained in the notes to the relevant measurement categories.

The classes under ifrs ⁷ also include, pursuant to ias 39, cash proceeds and liabilities from finance leases in addition to the categories listed above.

Disclosures about risk reporting as specified under ifrs 7 are included in the risk report within the consolidated management report.

Financial assets

Financial assets other than securities are recognised at cost, less impairment losses. Non-current securities are classified as »available for sale« and recognised at fair value directly in equity. No assets are classified as »held to maturity.«

Moreover, the »fair value option« provided for under ias ³⁹ is not applied to any balance sheet items within the krones group.

Derivative financial instruments

The derivative financial instruments used within the krones group are used to hedge against currency risks from operating activities.

The primary category of currency risk at krones is transaction risks arising from exchange rates and cash flows in foreign currencies. These currencies are, primarily, the us dollar, Canadian dollar, British pound, and Swiss franc.

Within the hedging strategy, 100% of items denominated in foreign currencies are generally hedged. The primary hedging instruments used for this are forward exchange contracts and, occasionally, swaps, including currency swaps.

The strategy objective is to minimise currency risk by using hedging instruments that are viewed as highly effective and thus both hedging the exchange rate and achieving planning security.

The derivative financial instruments are measured at fair value at the balance sheet date. Gains and losses from the measurement are recognised as profit or loss on the income statement unless the conditions for hedge accounting are met.

Scheduled depreciation is based on the following useful lives, which are applied uniformly throughout the group:

In figuring the useful lives, the different components of an asset with significantly different costs were taken into account.

Government grants are only recognised if there is reasonable assurance that the conditions attaching to them will be complied with and the grants will be received.

Apart from grants related to income, which are recognized in their full amount in profit or loss, grants related to assets are deducted in arriving at the carrying amount of the asset on the balance sheet and recognised in profit and loss by way of a reduced depreciation charge in the subsequent periods.

Leases

Leases in which the krones group, as the lessee, bears substantially all the risks and rewards incident to ownership of the leased asset are treated as finance leases pursuant to ias 17 upon inception of the lease. The leased asset is recognised as a noncurrent asset at fair value or, if lower, at the present value of the minimum lease payments. The leased asset is depreciated systematically using the straight-line method over the shorter of its »estimated useful life« or the »lease term«. Obligations for future lease instalments are recognised as »other liabilities«.

In the case of operating leases, the leased assets are treated as assets belonging to the lessor since the lessor bears the risks and rewards.

Financial instruments

Financial instruments under ias ³⁹ used by krones consist of the following:

Financial assets
Financial instruments held for trading (derivative financial instruments)
Available-for-sale financial instruments
Financial receivables and liabilities

For the measurement categories, the carrying amounts correspond to the fair values.

Usef ul lif e	In ye ars
Buil ding s	14 — 50
Tech l equ and chin nica ipm ent ma es	5 — 16
and fixt and offi Furn iture quip t ures ce e men	3 — 15

The derivative financial instruments for which hedge accounting is applied comprise forward currency contracts and currency swaps whose changes in fair value are recognised either in income (»fair value hedge«) or in equity (»cash flow hedge«). In the case of cash flow hedges, to mitigate currency risks from existing underlying transactions, changes in fair value are initially recognised directly in equity and subsequently transferred to the income statement when the hedged item is recognised in the income statement. The derivative financial instruments are measured on the basis of the relevant commercial bank's forward rates.

They are derecognised only when substantially all risks and rewards of ownership are transferred.

Receivables and other assets

Receivables and other assets, with the exception of derivative financial instruments, are assets that are not held for trading. They are reported at amortised cost. Receivables with maturities of over one year that bear no or lower-than-market interest are discounted. Impairments are recognised to take account for all identifiable risks. The indicators used for this are the ageing of the receivables and the customer's business situation.

Inventories

Inventories are stated at the lower of cost or net realisable value. Cost includes those costs that are directly related to the units of production and an appropriate portion of fixed and variable production overheads. The portion of overheads is determined on the basis of normal operating capacity. Selling costs, general administrative costs, and borrowing costs are not included in the costs of inventories. For inventory risks arising from increased storage periods or reduced usability, write-downs are made on the inventories.

For the sake of convenience in measuring materials and supplies, the FiFo and weighted average cost formulas are applied.

Construction contracts for specific customers

Construction contracts for specific customers that are in progress are recognised according to the degree of completion pursuant to ias 11 (»percentage-of-completion method«). Under this method, contract revenue is recognised in accordance with the percentage of physical completion of the lines and machines at the balance sheet date. The percentage of completion corresponds to the ratio of contract costs incurred up to the balance sheet date to the total costs calculated for the contract. The construction contracts are recognised under trade receivables.

Deferred tax items

Deferred tax assets and liabilities are recognised using the balance-sheet oriented »liability method«. This involves creating deferred tax items for all temporary differences between the tax and ifrs balance sheet carrying amounts and for consolidation procedures affecting income.

The deferred tax items are computed on the basis of the national income tax rates that apply in the individual countries at the time of realisation. Changes in the tax rates are taken into account if there is sufficient certainty that they will occur. Where permissible under law, deferred tax assets and liabilities have been offset.

Provisions for pensions

Provisions for pensions are calculated using the »projected unit credit method« pursuant to ias ¹⁹. Under this method, known vested benefits at the reporting date as well as expected future increases in pensions and salaries are taken into account with due consideration to relevant factors that will affect the benefit amount, which are estimated on a prudent basis. The provision is calculated on the basis of actuarial valuations that take into account biometric factors.

Actuarial gains and losses are only recognised as income or expenses if they exceed 10% of the obligations. These are recognised over the expected average remaining working lives of the employees.

Other provisions

Other provisions are recognised when the Group has an obligation to a third party as a result of a past event, an outflow is probable, and a reliable estimate of the amount of the obligation can be made. Measurement of these provisions is computed at fully attributable costs or on the basis of the most probable expenditures needed to settle the obligation.

Provisions with a residual term of more than one year are recognised at the present value of the probable expenditures needed to settle the obligation at the reporting date.

Financial liabilities

For initial recognition, in accordance with ias ³⁹, financial liabilities are measured at the cost that is equivalent to the fair value of the consideration given. Transaction costs are included in this initial measurement of financial liabilities. After initial recognition, all financial liabilities are measured at amortised cost.

¹ Property, plant and equipment, intangible assets, and financial assets

With respect to changes in the items presented under property, plant and equipment, intangible assets, and financial assets, please refer to the consolidated statement of changes in non-current assets (pp. 12–15).

² Intangible assets

The addition under intellectual property rights and licenses primarily relates to computer software licenses.

The capitalised development costs relate to new machinery projects of krones ag and sander hansen as and of the kosme group. The development costs capitalised in 2007 amount to €14,638k (previous year: €9,462k). In addition, a total of €91,849k was spent on research and development in 2007 (previous year: €89,497k). In the reporting period, an impairment of €360k was recognised on development costs capitalised (previous year: €0k)

3 Property, plant and equipment

As in the previous year, no impairments or impairment reversals pursuant to ias 36 were necessary in 2007.

In 2007, the carrying amounts for property, plant and equipment included grants of €461k (previous year: €551k). Of the grants, €50k (previous year: €49k) were recognised in profit and loss by way of a reduced depreciation charge in 2007.

For the property, plant and equipment reported, there were no restrictions on title or right of disposal.

Property, plant and equipment includes leased assets amounting to €16,479k (previous year: €16,680k), which are to be attributed as the economic property of the relevant group company due to the provisions of the underlying lease (finance lease).

The carrying amounts of the capitalised leased assets are as follows:

There were no additions under ifrs 3 or ifrs 5 during the reporting period.

Sales revenues

With the exception of those contracts that are measured according to ias 11, sales revenues are recognised, in accordance with the criteria laid out under ias 18, when the significant risks and rewards of ownership are transferred, when a price is agreed or can be determined, and economic benefit from the sale of goods is sufficiently probable.

Sales revenues are reported less reductions.

Segment reporting

Intrasegment transfers are conducted under the same conditions as transfers among third parties.

Intersegment revenues are negligible.

Land and bui ldin nclu ding bui ldin n th ird-p lan d gs, i arty
gs o	14,7 50	15,2 45
Tech nica l equ ipm ent and chin ma es	1,04 2	830
Oth quip t, fu rnitu nd f ixtu and offi quip t er e men re a res, ce e men	687	605
l Tota	16,4 79	16,6 80

Notes to the consolidated balance sheet

31 Dec 2006
15,245
830
605
16,680

Existing individual risks were accounted for through direct deductions amounting to €1,753k. For receivables from customers, the amounts recognised on the balance sheet correspond to the fair values.

The allowance account developed as follows:

The other assets include primarily advance payments made (€19,811k; 2006: €25,971k), tax receivables (€27,406k; 2006: €17,627k), prepaid expenses (€5,874k; 2006: €4,004k), and creditors with debit balances (€2,275k; 2006: €1,192k).

The derivative financial instruments measured at fair value, which were entered into for future payment receipts and meet the conditions for hedge accounting or which were entered into as freestanding hedge transactions, amounted to €3,074k in 2007 (2006: €1,992k).

⁷ Cash and cash equivalents

Apart from cash on hand amounting to €61k (2006: €238k), cash and cash equivalents, which amount to €53,750k (2006: €57,727k), consist primarily of bank balances. Changes in cash and cash equivalents under ias ⁷ »Cash flow statements« are presented in the cash flow statement on p. 7.

8 Taxes on income

Current tax receivables and liabilities consist exclusively of income taxes pursuant to ias ¹². Taxes on income can be broken down as follows:

The deferred tax items are computed on the basis of the national income tax rates that apply or are expected due to the current legal situation in the individual countries at the time of realisation. In Germany, a corporate income tax rate of 25.0% plus a solidarity surcharge of 5.5% and a local business tax rate (Gewerbesteuerhebesatz) for krones ag that averages 327% apply. Thus, the total income tax rate for the companies in Germany is 36.7%. Abroad, the tax rates are in the 22.5% to 42.0% range. The 2008 corporate income tax reform will lower the corporate income tax rate from 25% to 15%. Thus, the total income tax rate for krones ag will drop from 36.7% to 27.2%. The 27.2% rate was used to calculate deferred taxes.

4 Financial assets

Financial assets, which amount to €14,497k (previous year: €15,025k), relate substantially to shares in associated enterprises and other lendings. The carrying amounts on the balance sheet correspond to the fair values.

5 Inventories

The inventories of the krones group are composed as follows:

Inventories are recognised at the lower of cost or fair value less selling expenses. Construction contracts in progress at the balance sheet date do not have gross amounts due to customers (liability) or gross amounts due from customers (asset) since recognition is done using the percentage of completion method.

Impairments of €6,697k on inventories were recognised as expenses in 2007 (2006: €10,042k) and are based substantially on customary net realisable values and obsolescence allowances. The amount of impairment reversals recognised in profit and loss due to improved market conditions was insignificant. The carrying amount of the inventories recognised at fair value less selling expenses totalled €13,846k in 2007.

6 Receivables and other assets

Receivables and other assets break down as follows:

in € k	31 D ec 20 07	31 D ec 20 06
Defe rred tax es	737	3,44 8
Curr ent taxe s	51,0 64	28,6 51
l Tota	51,8 01	32,0 99

k in €	31 D ec 20 07	31 D ec 20 06
Mat eria ls an d su ppli es	152 ,087	136 ,123
k in Wor prog ress	179 ,944	121 ,833
hed ds Finis goo	136 ,172	112 ,254
ds p urch ased for sale Goo	31,5 46	13,8 66
Misc ella neo us	5,70 2	3,01 8
l Tota	505 ,451	387 ,094

in € k	31 D ec 20 07	31 D ec 20 06
Trad able ceiv e re s	611 ,870	574 ,872
(of w hich re d onth late r) ts a ue in am oun 12 m s or	28,1 89	33,9 58

Oth sset er a s	63,9 65	99 55,7
(of w r) hich re d ue in onth late ts a 12 m s or am oun	2,33 7	884

At 1 Janu ary 200 7	31,2 50
Add ition s to imp airm ents	11,5 96
rsals of i Reve irme nts mpa	13,2 08
At 3 ber 1 De cem 200 7	29,6 38

The deferred tax assets and liabilities at 31 December 2007 break down by balance sheet items as follows:

The deferred tax assets and liabilities recognised directly in equity amounted to €928k at the reporting date (previous year: €1,053k). The deferred tax items recognised on loss carryforwards relate to kosme s.r.l. Italy. These loss carryforwards can be carried forward indefinitely. According to our earnings planning, positive tax results can be expected in the future. Deferred tax items were not recognised on tax loss carryforwards of €8,990k, which expire in six years on average.

The income tax expense of €51,801k reported in 2007 is €4,559k lower than the expected income tax expense that would theoretically result from application of the domestic tax rate of 36.7% at the group level. The difference can be attributed to the following:

The difference between reductions in taxes and increases in taxes for 2007 yields reductions in taxes, which are primarily attributable to tax-free earnings and to the fact that the 27.2% tax rate that applies from 2008 onward was used to calculate deferred taxes whereas the actual average tax rate for krones ag in 2007 was still 36.7%.

9 Equity

krones ag's capital stock amounted to €40,000,000.00 at 31 December 2007 (previous year: €26,922,135.36). It is divided into 31,593,072 ordinary bearer shares (previous year: 10,531,024) with a par value of €1.27 per share (previous year: €2.56).

By resolution of the annual shareholders' meeting on 20 June 2007, the capital stock was increased by €13,077,864.64 to €40,000,000.00. The capital increase was funded from the company's own financial resources, namely from the conversion of other retained earnings reported on the balance sheet for the period ended 31 December 2006, without the issuance of new shares.

By resolution of the annual shareholders' meeting on 20 June 2007, each of the ordinary bearer shares was split into 3 shares. Thus, for each ordinary share there are now three ordinary shares.

By resolution of the annual shareholders' meeting of 20 June 2007, a stock of authorised capital was established. With this authorised capital, the Executive Board may, with approval of the Supervisory Board, increase the share capital by a total of up to €10,000,000.00 through the issuance once or repeatedly of ordinary bearer shares against cash contributions up to and including 31 May 2012. Shareholders must be granted subscription rights to these shares.

in € k	31 D ec 20 07	31 D ec 20 06
for the Tax rate nt co pare mpa ny k ron es a g	36.7 %	36.7 %
(the ical) Expe cted oret inco me t ax e xpe nse	56,3 59	40,2 36
Adju due to d iffer stm ents ent tax rate s	-1,3 79	-1,6 31
Adju due cha stm ents to t ate ax r nge s	-2,5 52	758
Red f co ax d ofit dist ribu ucti ate inco me t ue t tion on o rpor o pr	0	-1,5 16
Red x du -free ucti in ta e to tax ning ons ear s	-4,3 23	-1,3 14
loss ryfo rds Tax car rwa	-92	-90
s in due on-d edu ctib le ex Incr tax to n ease exp ense pen ses	5,13 9	2,46 4
(-) / (+) for p Tax inco tax revio me exp ense us y ears	310	-7,7 86
(-) / (+) ing f aud Tax inco tax aris its me exp ense rom	33	-27 1
Oth er	-1,6 94	1,24 9
inco Taxe s on me	51,8 01	32,0 99

in € k	Defe rred tax ets ass		Def d ta erre	x lia bilit ies
	31 D ec 20 07	31 D ec 20 06	31 D ec 20 07	31 D ec 20 06
ngib le as Inta sets	506	266	12,4 00	14,7 25
, pla nd e Prop erty nt a quip t men	7	33	13,0 48	14,9 99
Fina ncia l ass ets	0	0	9	9
Oth nt a sset er n on-c urre s	718	0	84	0
Inve ntor ies	4,24 5	4,92 8	862	110
Oth t as sets er cu rren	2,48 8	20,5 05	1,43 5	47
ryfo Tax loss rds car rwa	770	19	0	0
ision Non rent -cur prov s	9,77 7	14,0 40	0	0
Oth nt li abil ities er n urre on-c	3,64 3	4,68 6	399	986
Curr ent ision prov s	4,76 7	4,14 8	0	16,3 54
Oth t lia bilit ies er cu rren	1,20 4	995	511	890
Cash flow hed ging	0	0	878	1,19 8
solid Con atio n	0	0	2,37 1	3,15 0
Sub l tota	28,1 25	49,6 20	31,9 97	52,4 68
Offs ettin g	-21 ,132	-43 ,807	-21 ,132	-43 ,807
Tota l	6,99 3	5,81 3	10,8 65	8,66 1

The annual shareholders' meeting on 20 June 2007 passed a resolution authorising the company to buy and sell treasury shares totalling up to 10% of the current share capital on its behalf up to and including 19 December 2008, in compliance with § 71 (2) of the German Stock Corporation Act. The lowest transaction value at which each treasury share can be acquired shall be the mean of the single price quotations for the share on the Frankfurt Stock Exchange over the last five trading days prior to the Executive Board's decision to purchase, minus 10%. The highest transaction value shall be this mean value plus 10%.

Changes in equity that are not recognised in profit or loss totalled –€5,660k in 2007 (previous year: –€6,013k) and consisted of changes in currency differences, changes to the consolidated group, and hedge accounting. The sum of changes in equity that are not recognised in profit or loss and those that are recognised in profit or loss, was €96,106k (previous year: €71,524k).

Disclosures about capital management

A strong equity position is an important prerequisite for ensuring krones' long-term survival. To achieve this, krones regularly monitors and manages its capital on the basis of the equity ratio, return on capital employed (roce), and return on equity (roe).

10 Capital reserves

The capital reserves are unchanged at €103,703k and do not include any additional capital contributions under § 272 (2) No. 4 of the German Commercial Code (hgb).

¹¹ Retained earnings

The legal reserve remains unchanged from 2006 at €51k.

The other retained earnings include the recognition of negative goodwill from acquisition accounting for subsidiaries consolidated before 1 January 2004 and adjustments made directly in equity at 1 January 2004 as part of the first-time application of ifrss.

Apart from the currency translations of financial statements of foreign subsidiaries that are recognised directly in equity, currency differences recognised under retained earnings also include exchange differences resulting from the translation of equity using historical exchange rates.

12 Other reserves

The other reserves include the effects from the recognition in equity of financial instruments measured after taxes.

Changes in the reserve for cash flow hedges presented under other reserves and the reserve for the fair value of securities were as follows:

13 Minority interests

The item in the consolidated balance sheet for minority interests includes third-party shares in the capital and earnings of kosme s.r.l., Roverbella, Italy, and maintec gmbh, Collenberg/Main, Germany.

A detailed overview of the composition of and changes to the individual equity components for the krones group in 2007 and 2006 is presented in the statement of changes in equity on pp. 8–9.

¹⁴ Provisions for pensions

The provisions for pensions have been recognised for obligations relating to vested benefits and current benefit payments to eligible active and former employees of the companies of the krones group and their surviving dependents. Various forms of provisioning for retirement exist depending on the legal, economic, and tax circumstances of the relevant country and are generally based on the employees' remuneration and years of service.

Company pension plans are generally either defined contribution plans or defined benefit plans.

In defined contribution plans, the company does not assume any obligations beyond establishing contribution payments to special purpose funds. Contributions are recognised as personnel expense in the year in which they are paid.

k in €	Rese rve fo r cash flow hedg es	Rese rve fo r the f air value of rities secu	Total
6 At 1 Janu ary 200	-1,2 56	6	-1,2 50
t ch ised Mea in e quit sure men ang e re cogn y	2,23 8	-4	2,23 4
sfer red t o th Amo unt tran e inc stat nt ome eme	996		996
on it tak en d irect ly to or t ferr ed f ity Tax ems rans rom equ	-1,3 32	0	-1,3 32
diff Curr ency eren ce	178		178
ber At 3 1 De 6 200 cem	824	2	826
t ch ised Mea in e quit sure men ang e re cogn y	-12 7	-7	-13 4
Amo unt tran sfer red t o th e inc stat nt ome eme	-91		-91
on it tak en d irect ly to ferr ed f ity Tax or t ems rans rom equ	142	1	143
diff Curr eren ency ce	-51		-51
ber At 3 1 De cem 200 7	697	-4	693

In defined benefit plans, the company undertakes an obligation to render the benefits promised to active and former employees, whereby a distinction is made between systems that are financed by provisions and those financed through pension funds. The amount of the pension obligations (»defined benefit obligation«) has been computed in accordance with actuarial methods. Apart from the assumptions regarding life expectancy, the following factors were also taken into account in the actuarial calculation:

The projected increase in wages and salaries comprises expected future pay increases, which are estimated each year on the basis of inflation and employees' years of service with the company. Since the pension commitments at our companies in Germany are independent of future pay increases, the projected increase in wages and salaries was not taken into account for determining the corresponding pension provisions.

Increases or decreases in either the net present value of obligations under defined benefit plans or the fair value of the fund assets can result in actuarial gains or losses due to such factors as changes in the parameters, changes in estimates relating to the risks associated with the pension commitments, and differences between the actual and expected return on plan assets. The net value of the pension provisions breaks down as follows:

The pension provisions, which amounted to €72,121k at the reporting date (previous year: €67,398k), are primarily attributable to krones ag.

The composition of expenses arising from pension obligations, which amounted to €9,157k (2006: €8,938k), the reconciliation of the present value of defined benefit obligations, which amounted to €96,477k (2006: €113,246k), and the plan assets of €18,918k (2006: €19,137k) breaks down as follows:

Expenses arising from pension commitments are recognised under personnel expenses.

The actual return on plan assets was €751k. The plan assets consist of securities. No payments are expected to be made into the plan in 2007. The expected return is estimated on the basis of the fund administrator's future interest rate developments. In 2007, a total of €35,514k was spent on defined contribution plans (previous year: €33,119k).

in € k	31 D ec 20 07	31 D ec 20 06
Plan ets a t 1 Ja ass nua ry	19,1 37	19,8 10
cted Expe retu rn	376	388
loye trib utio Emp r con ns	2,39 6	1,25 3
efits pai d Ben	-2,1 76	-2,1 85
ised Unre gai sets cogn ns o n as	-81 3	-86
diff Curr ency eren ces	-2	-43
Plan ets a t 31 Dece mbe ass r	18,9 18	19,1 37

31 D	31 D
ec 20	ec 20
07	06
4,18	4,06
5	1
4,72	4,46
4	0
-37	-38
5	8
619	797
4	8
0	0
9,15	8,93
7	8

ost f Serv ice c or th riod e pe	4,18 5	4,06 1
Inte rest exp ense	4,72 4	4,46 0
cted n pla Expe retu sets rn o n as	-37 5	-38 8
l gai ns/l Actu aria osse s	619	797
ed p Reco gnis ast s ervi ost ce c	4	8
Plan tailm ents cur	0	0
aris ing f sion obl igat ions Expe nses rom pen	9,15 7	8,93 8

in € k	31 D ec 20 07	31 D ec 20 06	31 D ec 20 05
valu e of ben efit Pres ent mitm ents com	96,4 77	113 ,246	111 ,109
valu e of pla Fair sets n as	18,9 18	19,1 37	19,8 10
Und llate ralis atio n of pla sets erco n as	-12 ,509	64 -7,4	-7,8 93

in %	Ger man y		Oth er co	untr ies
	200 7	200 6	200 7	200 6
Disc t rat oun e	5.70	4.30	8.00	4.50 -6.0 0
Proj d in se in nd s alar ies ecte crea wag es a	0.00	0.00	5.90	2.00
d in Proj ecte se in sion crea pen s	2.00	2.00	0.00	0.00

k in €	31 D ec 20 07	31 D ec 20 06
e of efit fina Pres ent valu ben mitm ents nced by p rovi sion com s	65,0 50	86,6 45
valu e of ben efit mitm fina nced thro ugh sion fun ds Pres ent ents com pen	31,4 27	26,6 01
(gro ss) valu e of ben efit Pres ent mitm ents com	96,4 77	113 ,246
valu e of pla Fair sets n as	-18 ,918	-19 ,137
valu e of ben efit (ne t) Pres ent mitm ents com	77,5 59	94,1 09
Actu aria l los not gnis ed o n th e ba lanc e sh eet ses reco	-2,3 74	-23 ,337
ying ber Carr t at 31 D am oun ecem	75,1 85	70,7 72

in € k	31 D ec 20 07	31 D ec 20 06
valu e of ben efit Pres ent mitm ents at 1 Jan uary com	113 ,246	111 ,109
ost f or th riod Serv ice c e pe	4,18 5	4,06 1
Inte rest exp ense	4,72 4	4,46 0
aria l los gnis ed o n th e ba lanc e sh Actu not eet ses reco	-21 ,158	-2,6 41
efits d Ben pai	-4,4 97	-3,6 55
ed p Reco gnis ast s ervi ost ce c	4	0
diff Curr ency eren ces	-27	-88
Pres ent valu e of ben efit mitm ents at 3 1 De ber com cem	96,4 77	113 ,246

valu e of ben efit Pres ent mitm ents at 1 Jan com uary	113 ,246	111 ,109
ost f Serv ice c or th riod e pe	4,18 5	4,06 1
Inte rest exp ense	4,72 4	4,46 0
l los ed o n th e ba lanc e sh Actu aria not gnis eet reco ses	-21 ,158	-2,6 41
efits d Ben pai	-4,4 97	-3,6 55
Reco gnis ed p ast s ervi ost ce c	4	0
diff Curr ency eren ces	-27	-88
valu e of ben efit mitm ber Pres ent ents at 3 1 De com cem	96,4 77	113 ,246

consolidated financial statements

The other financial liabilities are obligations on bills. Under ias ³⁹, these represent possible liabilities from bills sold and are recognised as trade receivables amounting to €51,463k (2006: €31,253k).

The other liabilities consist of deferred income (€1,729k; 2006: €1,235k) and other remaining liabilities (€201,150k; 2006: €207,664k).

The other remaining liabilities break down as follows:

Accruals, which amounted to €150,679k (2006: €148,742k), have greater certainty with respect to their amount and timing than provisions have. The primary items they include are outstanding supplier invoices, obligations relating to flexible working hours, accrued vacation, and performance bonuses.

The liabilities from finance leases are recognised under other liabilities without consideration of future interest expense. The residual terms of the individual leases are between 2 and 5 years. Some of the leases contain options for extension or purchase.

k in €	Resid ual	Resid ual	Resid ual	Total
	term of u p to	term of	term of ov er	at
	nths 12 mo	1 – 5 y ears	5 yea rs	6 31 De c 200
liab ilitie Tax s	7,69 0			7,69 0
al se ty li abil Soci curi ities	3,46 0			3,46 0
oll l iabi litie Payr s	8,10 4			8,10 4
Deb tors wit h cre dit b alan ces	7,19 0			7,19 0
Fina leas nce es	1,08 7	1,71 0	5,97 9	8,77 6
uals Accr	148 ,742			148 ,742
Oth er	22,3 77	1,32 5		23,7 02
l Tota	198 ,650	3,03 5	5,97 9	207 ,664

Resid ual of u term p to nths 12 mo	Resid ual of term 1 – 5 y ears	Total at 31 De c 200 7
10,9 99	613	11,6 12
4,39 9		4,39 9
9,60 0		9,60 0
7,33 2		7,33 2
971	6,77 8	7,74 9
150 ,679		150 ,679
8,97 7	802	9,77 9
192 ,957	8,19 3	201 ,150

¹⁵ Provisions for tax liabilities and other provisions

Of the other provisions, which amounted to €154,229k in 2007 (previous year: €137,498k), €110,543k (previous year: €92,330k) are due within one year. These other provisions apply to the following items:

The provisions for personnel obligations are primarily for non-current obligations relating to early retirement (€36,839k). The other remaining provisions primarily consist of warranties, anticipated losses, and legal risks. Estimates are based on customary empirical values. The non-current provisions have been discounted using rates between 4.0% and 5.5%.

16 Liabilities

The liabilities to banks are primarily a long-term loan taken out at customary market interest rates. Therefore, the liabilities are carried at fair value.

in € k	Resid ual of u term p to nths 12 mo	Resid ual of term 1 – 5 y ears	Resid ual of ov term er 5 yea rs	l Tota at 31 De c 200 7
Liab ilitie s to ban ks	80	348	382	810
Adv ceiv ed ts re ance pay men	285 ,996	0	0	285 ,996
Trad yab les e pa	161 ,216	67	0	161 ,283
Oth er fi cial liab ilitie nan s	43,1 35	15,8 75	0	59,0 10
Oth er li abil ities	194 ,686	8,19 3	0	202 ,879
l Tota	685 ,113	24,4 83	382	709 ,978

in € k	Resid ual of u term p to nths 12 mo	Resid ual of term 1 – 5 y ears	Resid ual of ov term er 5 yea rs	l Tota at 31 De 6 c 200
Liab ilitie ban ks s to	77	336	474	887
Adv ts re ceiv ed ance pay men	190 ,223	0	0	190 ,223
Trad yab les e pa	154 ,201	399	0	154 ,600
Oth er fi cial liab ilitie nan s	25,9 38	12,7 58	0	38,6 96
Oth er li abil ities	199 ,885	3,03 5	5,97 9	208 ,899
Tota l	570 ,324	16,5 28	6,45 3	593 ,305

in € k	1 Jan 2007	Use	rsal Reve	Addi tion	Curr ency	31 De c 200	7 d ithin ue w
					diffe rence s		1 yea r
liab ilitie Tax s	30,7 08	16,8 20	63	11,4 38	-25	25,2 38	25,2 38
el o blig Pers atio onn ns	46,1 04	4,12 8	0	1,41 9	53	43,4 48	167
Adm inist rativ e ex pen ses	90	89	0	81	-2	80	80
Oth mai ning er re
ision s91. 304 prov	16,7 12	4,23 1	41,0 94	-75 4	110 ,701	110 ,296
l Tota	168 ,206	37,7 49	4,29 4	54,0 32	-72 8	179 ,467	135 ,781

The present values of minimum lease payments for finance leases recognised under the other remaining liabilities are as follows, broken down by residual term:

¹⁷ Contingent liabilities

No provisions have been recognised for the contingent liabilities, which are recognised at nominal values, because the risk of their use is deemed to be low.

These consist of guarantee and warranty risks amounting to €4,970k (2006: €10,908k) and are guarantees on prepayments and the balance of purchase money.

18 Other liabilities

The other liabilities consist primarily of operating leases and long-term rental agreements for land and buildings, vehicles, computers, and telecommunication equipment.

Payments amounting to €14,091k (2006: €11,106k) were made in 2007 under these rental and lease agreements.

In the case of operating leases, the leased assets are treated as assets belonging to the lessor since the lessor bears the risks and rewards.

19 Derivative financial instruments

The derivative financial instruments of the krones group, with a fair value of €3,074k (2006: €1,992k) of which €3,074k are short-term (2006: €1,991k), substantially cover the currency risks relating to the us dollar, British pound, Canadian dollar, Swiss franc, and euro. The fair value includes the difference between the forward rate received from the relevant commercial bank and the rate at the reporting date as well as appropriate premiums or discounts for the expected price development through maturity. These financial instruments are accounted for using the settlement date.

The derivative financial instruments are essentially composed of forward exchange contracts at a secured volume of €122.0m (2006: €189.4m), of which €122.0m are short-term (2006: €189.3m). This volume includes a nominal volume of €52.2m (previous year: €142.3m) for short-term cash flow hedges and is measured at a fair value of €53.1m (previous year: €142.7m). The risk of default relating to derivative financial instruments is limited to the balance of the positive fair values in the event of a contracting party's default. The cash flow hedges presented are effective.

Net loss from these financial instruments was €57k in 2007.

in € k	31 D ec 20 07	31 D ec 20 06
inim leas Futu nts re m um e pa yme
Up t o 1 y ear	1,66 9	1,80 2
1 to 5 ye ars	9,16 5	4,10 4
Ove r 5 y ears	0	6,54 7
	10,8 34	12,4 53
tion of f inim leas Inte rest utur nts por e m um e pa yme
Up t o 1 y ear	698	715
1 to 5 ye ars	2,38 7	2,39 4
Ove r 5 y ears	0	568
	3,08 5	3,67 7
valu e of fut m le Pres ent min imu ents ure ase paym
Up t o 1 y ear	971	1,08 7
1 to 5 ye ars	6,77 8	1,71 0
Ove r 5 y ears	0	5,97 9
	7,74 9	8,77 6

in € k	31 D ec 20 07	31 D ec 20 06
leas Futu inim nts re m um e pa yme
Up t o 1 y ear	7,82 1	6,58 4
1 to 5 ye ars	6,60 1	8,53 3
	22 14,4	15,1 17
Futu aint re m ena nce
Up t o 1 y ear	5,25 4	4,24 0
1 to 5 ye ars	1,06 6	454
Ove r 5 y ears	2	3
	6,32 2	4,69 7
Oth er
Up t o 1 y ear	2,98 0	3,07 8
1 to 5 ye ars	582	661
	3,56 2	3,73 9

20 Sales revenues

The sales revenues of the krones group, which amount to €2,155,953k (2006: €1,910,814k), consist of deliveries and services billed to customers less reductions. In the segment reporting, sales revenues are presented in detail, divided by business area and geographic market. In 2007, revenues of €453,591k arose from open and completed construction contracts. Costs of €225,501k were incurred for open projects.

21 Other own work capitalised

Other own work capitalised includes capitalised development costs and capitalised cost of self-constructed property, plant and equipment.

With respect to the development costs capitalised in accordance with ias 38, please refer to the notes on intangible assets.

²² Other operating income

Apart from the income from the reversal of provisions (€4,294k; 2006: €9,699k) and the reversal of impairments (€13,208k; 2006: €12,536k), which are not related to the period, the other operating income, which amounts to €77,058k (2006: €54,665k), consists substantially of currency translation gains of €20,743k (2006: €17,427k). This is compared with the recognition of impairment losses of €11,596k (previous year: €15,807k) and currency translation losses of €10,623k (previous year: €9,194k) under other operating expenses.

23 Goods and services purchased

Expenses for goods and services purchased comprise expenses for materials and supplies and for goods purchased amounting to €986,490k (2006: €847,389k) and expenses for services purchased amounting to €199,620k (2006: €155,917k).

24 Personnel expenses

Within the krones group, 9,169 employees (2006: 8,865) including trainees were employed on average for the year. The workforce of the krones group is composed as follows (on average for the year):

25 Other operating expenses

Apart from the €63k in losses from disposals of non-current assets (2006: €1,007k), which are not related to the period, other operating expenses include additions to impairments on receivables (€11,596k; 2006: €15,807k) and other taxes (€2,349k; 2006: €3,367k).

²⁶ Net financial income (expense)

Financial income of €3,403k (2006: €1,635k) breaks down as follows:

27 Taxes on income

Taxes on income amounted to €51,801k in 2007 (previous year: €32,099k). More information is presented under »Taxes on income« on p. 27.

28 Earnings per share

Under ias 33 »Earnings per share,« basic earnings per share are calculated by dividing Group earnings – less profit or loss shares of minority interests – by the weighted average number of ordinary shares outstanding, as follows:

By resolution of the annual shareholders' meeting on 20 June 2007, a 3-for-1 share split was carried out, which increased the number of shares outstanding to 31,593,072.

If earnings per share for 2006 were calculated on the basis of this number of shares, earnings per share for 2006 would be €2.45.

Earnings per share were not diluted in 2007 or 2006.

	31 D ec 20 07	31 D ec 20 06
Sala ried ploy em ees	5,16 8	4,96 3
ploy Wag rnin e-ea g em ees	4,00 1	3,90 2
l Tota	9,16 9	8,86 5

in € k	31 D ec 20 07	31 D ec 20 06
me f oth and loa lass ified as f cial Inco curi ties inan ts rom er se ns c asse	7	20
Oth nd s imil er in tere st a ar in com e	10,1 02	6,44 6
Inte rest and sim ilar exp ense s	-8,0 24	-5,9 52
me ( ) inco Inte rest exp ense	2,08 5	514
Inve stm ent inco me	1,31 8	1,12 5
e-do on f cial Writ inan ts wns asse	0	-4
(ex se) Fina ncia l inc ome pen	3,40 3	1,63 5

31 D ec 20 07	31 D ec 20 06

less prof loss sha f mi sts ( k) Gro arni it or nori ty in tere in € up e ngs res o	102 ,734	77,3 11
ghte d av mbe r of ordi sha and Wei utst ing erag e nu nary res o	31,5 93,0 72	10,5 31,0 24
re (i n €) Earn ings sha per	3.25	7.34

Notes to the income statement

Group audit fees

The expenses for the group audit and the audit of the parent company totalled €357k in 2007 (previous year: €340k). In addition, expenses for tax consultancy services totalling €58k were incurred (previous year: €53k). The expense for the audit of the German subsidiaries was €30k (previous year: €15k).

Events after the balance sheet date

Material events after the balance sheet date either did not occur or are presented in the consolidated management report.

Related party disclosures

Within the meaning of ias ²⁴ »Related party disclosures,« the members of the Supervisory Board and of the Executive Board of krones ag and the companies of the krones group, including unconsolidated subsidiaries, are deemed related parties.

Purchases and sales between the related companies are transacted at prices customary on the market (»at arm's length«). Sales to related companies amounted to €39,641k in 2007 (previous year: €32,472). Trade and other payment transactions resulted in assets of €5,248k (previous year: €764k).

Executive Board compensation

These recommendations for members of the Executive Boards of listed stock corporations contain the following compensation elements:

fixed elements
variable elements that are payable annually and based on business performance
variable elements that serve as long-term incentives containing risk factors

For fiscal 2007, the direct fixed remuneration of the five active members of the Executive Board was €2,250k (2006: €2,030k). This fixed amount is the base pay stipulated in the members' contracts and is paid out in equal monthly amounts as a salary. This remuneration is generally reviewed as part of the negotiations relating to the extension of the members' contracts. In addition, the members of the Executive Board received fringe benefits in the form of non-cash benefits (company car) amounting to €85k (2006: €78k).
The variable compensation is based on the achievement of company performance targets. The reference figures are consolidated net income (the primary point of reference) and consolidated sales. The gradation of the targets is determined by the Supervisory Board each year. The variable compensation contains risk elements and is thus not guaranteed compensation. In 2007, the variable compensation amounted to €2,230k (2006: €1,460k).
In keeping with the recommendations of the Corporate Governance Code, the Supervisory Board adopted a long-term »performance incentive plan« containing risk elements at its meeting on 17 March 2005. Under this provision, each member of the Executive Board receives a performance incentive that is paid out after no less than ten years of service as a member of the Executive Board of krones ag. Board members serving for less than ten years are not entitled to the performance incentive.
The performance incentive is calculated from the relevant Board member's fixed annual remuneration at the time of appointment to the Executive Board and the development of the enterprise value from the time of entry onto the Board to the time at which payment of the incentive comes due.

Other disclosures

ebit, ebitda, and consolidated sales are used as the basis for calculating enterprise value. If the current enterprise value is less than it was at the time the member joined the Executive Board, the respective member is not entitled to the performance incentive.
In 2007, provisions of €1,341k (2006: €1,008k) were recognised for the performance incentive.
At krones ag there are and have been no stock-option plans or comparable securities-oriented long-term incentive components of remuneration for Executive Board members.
Pension provisions of €5,773k (2006: €5,594k) were recognised for active members of the Executive Board.

For former members of the Executive Board and their surviving dependents, payments amounting to €656k (2006: €651k) were made and pension provisions of €672k (2006: €669k) were recognised.

Supervisory Board compensation

For fiscal 2007, net income per share comes to €3.25. Thus, the variable compensation for each member of the Supervisory Board comes to €14,000.

Members of the Supervisory Board who belong to special committees within the Supervisory Board receive additional compensation of €10,000 annually as well as flat-rate reimbursement for expenses.

The total remuneration paid to members of the Supervisory Board amounted to €343k (2006: €231k) including variable portions totalling €168k (2006: €96k).

Moreover, the members of the Supervisory Board receive a flat €600 fee per meeting as reimbursement for their expenses unless they submit proof of having incurred higher expenses.

Members of the Supervisory Board who belonged to the board for only a portion of the fiscal year receive pro-rated compensation.

Corporate governance

Shareholders can access the declaration of the Executive Board and the Supervisory Board pursuant to § 161 of the German Stock Corporation Act (AktG) with respect to the Corporate Governance Code in the version dated 14 June 2007 at the krones ag website. Any deviations from the Code are also specified there.

Standards and interpretations not applied early

The iasb has issued the following standards, interpretations, and amendments to existing standards, the application of which is not yet mandatory and which krones ag did not apply early:

ias 1 »Presentation of financial statements«
ias ²³ »Borrowing costs«
ifrs ⁸ »Operating segments«

These new standards and interpretations are not expected to result in material changes for the consolidated financial statements of krones ag in the period in which they are first applied.

The following standards and interpretations, the application of which is not yet mandatory, do not apply to the consolidated financial statements of krones ag:

ifric ¹¹ »ifrs ² Group and treasury share transactions«
ifric 12 »Service concession arrangements«
ifric 13 »Customer loyalty programmes«
ifric 14 »ias 19 The limit on a defined benefit asset, minimum funding requirements, and their interaction«

Standards and interpretations applied for the first time

ias ¹ »Presentation of financial statements« (disclosures about capital)
ifrs ⁷ »Financial instruments: disclosures«

The first-time application of these standards resulted in additional disclosures within the notes to the consolidated financial statements and the consolidated management report.

f the Nam d lo cati e an on o com pany	Sha re in ital held cap
	by k g, in % ron es a
sped blin Sped ition bH, blin Neu trau s-Gm Neu trau g, G neu ger erm any	100 .00
nale sells chaf t mb aub ling es In tern atio Coo tion s-Ge H, N eutr , Ge kic k ron pera rma	100 .00 ny
ebra ucht chin mbH ubli ac G en G , Ne utra ng, G ecom mas erm any	100 .00
mbH , Col lenb Serv ice G erg/ Mai n, G mai ntec erm any	51.0 0
vain -la-N , Bel gium Lou s.a. kro nes n.v., euve	100 .00
Nord ic Ap lte, D ark S, Ho kro nes enm	100 .00
Hol ark a/s, te, D san der han sen enm	100 .00
.l., Ly on, F kro nes s.a.r ranc e	100 .00
Bolt kro nes uk l td., on, u k	100 .00
Staf ford , Bu rton on T rent shir kosm e uk ltd. e, u k	100 .00
(vr) ., Ga rda , Ita ly kro nes s.r.l	100 .00
Ned erla nd b osko ethe rlan ds .v., B op, N kro nes	100 .00
sells chaf llen e Ge t mb h, So au, A ustr ia kosm	100 .00
Spó lka z , Pol and , Wa kro nes .o.o. rsaw	100 .00
l Equ s Ind Lda. gal Port ipam ento ustr iais , Bar na, P ortu kro nes uga care	100 .00
, Rus sian Fed erat ion ., Mo kro nes o.o.o scow	100 .00
ania d. s. hare nia Rom Pro Buc st, R kro nes r.l., oma	100 .00
wil, land Butt Swi tzer kro nes ag,	100 .00
Iber celo ica, , Bar na, S pain kro nes s. a.	100 .00
ch R blic ., Pra , Cze kro nes s.r.o gue epu	100 .00
Ukra ine Kiev , Uk rain kro nes llc, e	100 .00
ice e , Sof ia, B ulga ria Serv mai ntec ood	51.0 0
bella ly .l., R , Ita kosm e s.r over	70.0 0
orf a n de Ser vice H, D r Pra m, A ustr ia ntec ges. m.b. mai	51.0 0
Surl atin ., Bu s Air es, A tina kro nes a s. a eno rgen	100 .00
a., S ão P aulo , Bra zil kro nes do b razi l ltd	100 .00
, São lo, B razil Pau kro nes s. a.	100 .00
ry (T ng) hine aica td., T aica hina Mac Co. L ng, C kro nes	100 .00
Trad (Taic ) Co . Ltd , Ch ing ., Tai ina kro nes ang cang	100 .00
(Beij ing) chin d., B hina Ma ery C o. Lt eijin g, C kro nes	100 .00
Ltd , Ch Asia ., Ho ng K ina kro nes ong	100 .00
Indi a Pv t. Lt d., B alor dia e, In kro nes ang	100 .00
. Ltd kyo, Japa n Co ., To Japa kro nes n	100 .00
hine . Ltd da Mac ry Co ., Bra mpt on, O ntar io, C kro nes ana	100 .00
And Ltda gotá , Col omb ina ., Bo ia kro nes	100 .00
a Ltd oul, Kore ., Se Kor kro nes ea	100 .00
Mex Mex ico C ity, M exic kro nes s. a . de c. v., o	100 .00
(Pro p.) L ther n Af rica td., J oha sbu outh Afr ica Sou rg, S kro nes nne	100 .00
nkli isco nsin Inc. , Fra n, W kro nes, , usa	100 .00
de V zuel ela Maq uina rias ., Ca s, Ve kro nes a s. a ene raca nezu	100 .00
(Tha ilan d) C d., B kok, Tha ilan d o. Lt kro nes ang	51.0 0
Beve Con sult ing and Eng inee ring . Co. Ltd. , Ban gko k, Th aila nd rage	49.0 0

neusped Neutraublinger Speditions-GmbH, Neutraubling, Germany 100.00 kic krones Internationale Cooperations-Gesellschaft mbH, Neutraubling, Germany 100.00 ecomac Gebrauchtmaschinen GmbH, Neutraubling, Germany 100.00 maintec Service GmbH, Collenberg/Main, Germany 51.00 s.a. krones n.v., Louvain-la-Neuve, Belgium 100.00 krones Nordic ApS, Holte, Denmark 100.00 sander hansen a/s, Holte, Denmark 100.00 krones s.a.r.l., Lyon, France 100.00 krones uk ltd., Bolton, uk 100.00 kosme uk ltd., Burton on Trent Staffordshire, uk 100.00 krones s.r.l., Garda (vr), Italy 100.00 krones Nederland b.v., Boskoop, Netherlands 100.00 kosme Gesellschaft mbh, Sollenau, Austria 100.00 krones Spólka z.o.o., Warsaw, Poland 100.00 krones Portugal Equipamentos Industriais Lda., Barcarena, Portugal 100.00 krones o.o.o., Moscow, Russian Federation 100.00 krones Romania Prod. s.r.l., Bucharest, Romania 100.00 krones ag, Buttwil, Switzerland 100.00 krones Iberica, s. a., Barcelona, Spain 100.00 krones s.r.o., Prague, Czech Republic 100.00 krones Ukraine llc, Kiev, Ukraine 100.00 maintec Service eood, Sofia, Bulgaria 51.00 kosme s.r.l., Roverbella, Italy 70.00 maintec Service ges.m.b.H, Dorf an der Pram, Austria 51.00 krones Surlatina s. a., Buenos Aires, Argentina 100.00 krones do brazil ltda., São Paulo, Brazil 100.00 krones s. a., São Paulo, Brazil 100.00 krones Machinery (Taicang) Co. Ltd., Taicang, China 100.00 krones Trading (Taicang) Co. Ltd., Taicang, China 100.00 krones (Beijing) Machinery Co. Ltd., Beijing, China 100.00 krones Asia Ltd., Hong Kong, China 100.00 krones India Pvt. Ltd., Bangalore, India 100.00 krones Japan Co. Ltd., Tokyo, Japan 100.00 krones Machinery Co. Ltd., Brampton, Ontario, Canada 100.00 krones Andina Ltda., Bogotá, Colombia 100.00 krones Korea Ltd., Seoul, Korea 100.00 krones Mex s. a. de c. v., Mexico City, Mexico 100.00 krones Southern Africa (Prop.) Ltd., Johannesburg, South Africa 100.00 krones, Inc., Franklin, Wisconsin, usa 100.00 Maquinarias krones de Venezuela s. a., Caracas, Venezuela 100.00 krones (Thailand) Co. Ltd., Bangkok, Thailand 51.00

Shareholdings

Following fulfilment of the requirements for application of the German Codetermination Act [Mitbestimmungsgesetz] of 1976 in 1987, the Supervisory Board was extended from 6 to 12 members. Pursuant to § ⁸ (1) of the articles of association, six members are elected from among the shareholders in accordance with the German Stock Corporation Act (§§ 96 (1) and 101). Six members are elected by the employees pursuant to §§ 1(1) and 7 (1) Sentence 1 No. 1 of the Codetermination Act.

members of the supervisory board

and the executive board

Dr. Lorenz M. Raith Chairman * leistritz ag moll ag prüftechnik ag

heitec ag

Paul Jogsch** Deputy Chairman until 20 June 2007

Werner Schrödl** Chairman of the Central Works Council Deputy Chairman

since 21 June 2007

Ernst Baumann Member of the Executive Board of bmw ag

Herbert Gerstner** Member of the Works Council

Dr. Klaus Heimann** Director of the Youth, Training, and Qualification Policy Division of ig metall *man ag

Dr. Jochen Klein

Chairman of the advisory council of döhler holding gmbh * döhler group karlsberg brauerei gmbh hoyer group

Prof. Dr. Ing. Erich Kohnhäuser *max aicher stahl ag

Norman Kronseder kronseder family office *bayerische futtersaatbau

gmbh

Walter Meyer** Director of wirtschafts-akademie-winzer in Regensburg until 20 June 2007 *delphi deutschland gmbh

Dr. Alexander Nerz Attorney

Anton Schindlbeck** Head of sales for lcs

Jürgen Scholz**

²nd authorised representative and treasurer of the ig metall administrative office in Regensburg since 21 June 2007 *vdo automobile ag

Josef Weitzer** Chairman of the Works Council since 21 June 2007

Volker Kronseder Chairman Personnel Management and Social Affairs * krones inc., usa Hans-Jürgen Thaus Deputy Chairman

Finance, Controlling, Information Management, and Process Management * kurtz gmbh *krones inc., usa

Rainulf Diepold Marketing and Sales

Werner Frischholz Materials Management

and Production

Christoph Klenk Research and Development, Engineering, and Product Divisions *winkler & dünnebier ag

Other Supervisory Board seats held, pursuant to § 125 (1), Sentence 3 of the German Stock Corporation Act

**Elected by the employees

In addition, each of the Group companies is the responsibility of two members of the Executive Board.

Supervisory Board Executive Board

After the allocation of €30,000,000 to other retained earnings, unappropriated profit of €54,500,250.53 remains.

We propose to the annual shareholders' meeting on 18 June 2008 that this amount be used as follows:

Proposal for the use of unappropriated profit € Dividend of €0.70 for 31,593,072 ordinary shares 22,115,150.40 Allocation to other retained earnings 32,000,000.00 Amount carried forward to new account 385,100.13

Neutraubling, 28 March 2008 krones ag

The Executive Board

proposal for the use of unappropriated profit of krones ag

Volker Kronseder (Chairman)

Hans-Jürgen Thaus Rainulf Diepold

(Deputy Chairman)

Werner Frischholz Christoph Klenk

22,115,150.40
32,000,000.00
385,100.13

We have audited the consolidated financial statements prepared by the krones Aktiengesellschaft, Neutraubling, comprising the balance sheet, the income statement, statement of changes in equity, cash flow statement and the notes to the consolidated financial statements, together with the group management report for the financial year from ¹ January ²⁰⁰⁷ to ³¹ December 2007. The preparation of the consolidated financial statements and the group management report in accordance with ifrs^s as adopted by the eu, and the additional requirements of German commercial law pursuant to § 315a Abs. [paragraph] 1 hgb are the responsibility of the parent company's management. Our responsibility is to express an opinion on the consolidated financial statements and on the group management report based on our audit.

We conducted our audit of the consolidated financial statements in accordance with § ³¹⁷ hgb and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (idw). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on the basis of samples within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the findings of our audit, the consolidated financial statements comply with ifrs^s as adopted by the eu and the additional requirements of German commercial law pursuant to § 315a Abs. ¹ hgb and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the Group's position and suitably presents the opportunities and risks of future development.

Regensburg ³¹ March ²⁰⁰⁷

Bayerische Treuhandgesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft

Rupprecht Medick Wirtschaftsprüfer Wirtschaftsprüfer

(German Public Auditor) (German Public Auditor)

auditor's report

krones group product divisions and segments

Machines and lines	Machines and lines	Machines and lines
for product filling	for beverage production/	for the low output range
and decoration	process technology	(kosme)
Systems engineering Labelling technology Inspection technology Filling technology Cleaning technology Plastics technology Packing and palletising technology Conveyor technology	Brewhouse and filtration technology Information technology Internal logistics Product treatment technology	Labelling technology Filling technology Plastics technology Packing and palletising technology Conveyor technology

Publication information

Published by	krones ag
	Böhmerwaldstrasse 5
	93073 Neutraubling
	Germany
Project lead	Hermann Graf Castell,
	Head of corporate communications
Concept	Büro Benseler
Text	InvestorPress GmbH
Photography	Uwe Moosburger, krones ag
Translation	Lisa Phillips
Printing	Mediahaus Biering GmbH
Litho	Mediahaus Biering GmbH
Paper	PhoeniXmotion, Invercote
Circulation	2,500 German
	1,500 English

Financial calendar

29 April 2008	Interim report for the period ended 31 March
	Annual report for 2007
	Financial press conference
18 June 2008	Annual shareholders' meeting
29 July 2008	Interim report for the period ended 30 June
29 October 2008	Interim report for the period ended 30 September

The exact dates are available at our website.

Contact

krones ag Investor Relations Fax + 49 9401 703786 E-mail [email protected] Internet www.krones.com Böhmerwaldstrasse 5 93073 Neutraubling Germany

Olaf Scholz Phone +49 9401 70-1169 Fax +49 9401 70-3205

This Annual Report is also available in German. We would be happy to mail you a copy on request. You can also find it in the investor relations section of our website.

AI assistant

KRONES AG — Annual Report 2007

251_10-k_2008-04-29_07ab17e0-d5c0-4ddb-a8d5-b3f3695b98b1.pdf

group figures 2003 – 2007

krones group annual report 2007

krones compact 3

consolidated management report

corporate governance

other information

Dear shareholders and friends of krones,

To our shareholders

The Executive Board Volker Kronseder *1953 Member of the Executive Board

since 1989. Chairman since 1996. Personnel Management and Social Affairs, Corporate Communications. Volker Kronseder is the oldest son

Food and beverages – the basis for continued growth for krones

krones' medium-term goals

General goals

Finance and accounting goals

krones' strategy

Goals and strategies

krones is establishing a unique, hard-to-copy business model

Process engineering

Internal logistics

Q3

Q1

Q2

New orders Q2 2007: €552.4m Sales Q2 2007: €548.9m

New orders Q4 2007: €537.4m Sales Q4 2007: €586.3m ebt Q4 2007: €48.6m krones share at 31 December 2007: €54.99

The krones share

The krones share registers strong gains

The stock markets in 2007

Portrait of the krones share

Shareholder structure

Key figures for the krones share

Earnings per share up 32.7%

Dividend to increase to €0.70

Successful investor relations work secures krones' place on the mdax

The Persian Golf Generation

Economic environment

Historic boom in the machinery sector

Growing packaging machinery market

Change in gdp, in % (Germany and European Union)

Strong global economic growth

Germany's gdp up 2.5%

Demand for packaged beverages is rising steadily

China is thirsty

Plastic is popular

krones is represented in all major markets

China

The Americas

North America

South America

Europe

Western Europe

Central Europe

Eastern Europe

Russia/cis

Beverage consumption in Eastern Europe in 2007 and 2010

Asia/Pacific and Japan

Middle East and Africa

management report

Moscow – the heart of Russia

A country on a large scale

krones in figures

Sales by region

Sales up 12.8% year-on-year, to €2,156.0m

Sales by segment

krones group sales, in € m

Sales

Sales by industry

krones group sales by industry

New orders far exceed revenues

Comfortable orders backlog

company situation and business development krones in figures

krones group new orders, in € m

New orders and orders on hand krones group earnings situation

krones group earnings structure, in € m

krones group net income

Earnings per share

krones group ebitda and ebit

krones group ebt

KRONES AG Annual Report 2007

New orders Q2 2007: €552.4^m Sales Q2 2007: €548.9^m

New orders Q4 2007: €537.4^m Sales Q4 2007: €586.3^m ebt Q4 2007: €48.6^m krones share at 31 December 2007: €54.99