KRONES AG — Annual Report 2012

Apr 25, 2013

Annual Report 2012 Growing profi tably

2012 highlights

• KRONES increased revenue 7.4% to €2,664.2 million.
• Earnings before taxes (EBT) rose from €74.6 million in the previous year to €97.9 million.
• KRONES settled its legal disputes in the USA. That resulted in a €37.8 million charge against 2012 EBT.
• The Executive Board and Supervisory Board propose a dividend of €0.75 per share (previous year: €0.60 per share).

		2012	2011	Change
Revenue	€ million	2,664.2	2,480.3	+7.4%
New orders, including Lifecycle Service	€ million	2,721.1	2,514.0	+8.2%
Orders on hand at 31 December,
including Lifecycle Service	€ million	999.3	942.4	+6.0%
EBIT	€ million	92.3	70.6	+30.7%
EBT	€ million	97.9	74.6	+31.2%
Consolidated net income	€ million	67.0	43.7	+53.3%
Earnings per share	€	2.22	1.45	+53.1%
Dividend per share	€	0.75*	0.60	+25.0%
Capital expenditure for
PP&E and intangible assets	€ million	110.9	106.0	+4.9
Free cash fl ow	€ million	30.6	–7.4	+38.0
Net cash position	€ million	132.9	125.5	+7.4
ROCE	%	9.9	7.9
Employees at 31 December
Worldwide		11,963	11,389	+574
Germany		9,076	8,887	+189
Outside Germany		2,887	2,502	+385

* As per proposal for the appropriation of retained earnings

KRONES made signifi cant progress with the Value strategy programme in 2012. We improved our cost structures, stepped up our use of modular design for our machines, and increased the international presence of our service business. Together with our team of nearly 12,000 employees, we will systematically implement additional measures under Value in 2013.

In all of our eff orts, we seek to meet each of our customers' specifi c needs. Because satisfying every one of our customers is KRONES' topmost goal. We want to provide our partners around the globe with dependable, top-quality machines and lines and the best, fastest service.

Th at is why KRONES is getting closer to its customers, particularly in the emerging markets. In this way, we are strengthening the company's position in booming economic regions and supporting KRONES' long-term profi table growth.

Economic environment 46
KRONES in fi gures60
Report from the segments.74
Research and development (R&D)80
Lifecycle Service (LCS). 85
Employees90
Sustainability at KRONES. 93
Risk and opportunity report.94
Events after the reporting period. 102
Report on expected developments 104
Disclosures required under § 315 (4) of
the German Commercial Code (HGB). 108
Compensation report 110

Responsibility statement. . . . . . . . . . . . . . . . . . . . . . . . 113

Statement on corporate governance 114
Declaration of compliance. 114
Composition of the Supervisory Board. 116
Information on corporate
governance practices117
Duties and activities of the Executive
Board and the Supervisory Board 118
Composition, duties, and activities
of the Supervisory Board Committee 119

Letter from the Executive Board . . . . . . . . . . . . . . . . . .4 The Executive Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Report of the Supervisory Board. . . . . . . . . . . . . . . . . .8 2012 in review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 KRONES at a glance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 KRONES has whole-plant expertise. . . . . . . . . . . . . 16 Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 The KRONES share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40

Separate income statement. 121
Statement of comprehensive income. 121
Statement of fi nancial position. 122
Statement of cash fl ows 124
Statement of changes in equity. 125

Segment reporting. 126
General disclosures. 128
Notes to the statement
of fi nancial position 136
Notes to the separate income statement . 152
Other disclosures. 154
Standards and interpretations 156
Shareholdings 157
Members of the Supervisory Board
and the Executive Board. 158
Proposal for the appropriation
of retained earnings. 159

Auditor's report 160
Commercial glossary. 162
Technical glossary 163

Dear shareholders and friends of KRONES,

2012 was an exciting year. Events relating to the economy as a whole and to our company specifi cally ensured that there was never a dull moment. We were very concerned when the situation in the euro zone escalated temporarily. There is no telling what the fallout would have been for KRONES and the economy as a whole if the euro area had broken apart. Happily, it looks – at least as things stand today – as though the euro is here to stay. The economic situation in Europe will likely at least stabilise.

An extremely important – albeit painful – development in 2012 was the settlement of the lawsuits against KRONES in the USA that had been ongoing since 2008. The proceedings, about which we informed you in detail last year, were triggered by claims for damages by several American fi nancial service providers, a group of hedge funds, and a liquidation trustee. The claims related to the fi nancial scandal involving the bankruptcy of the US company Le-Nature´s. We entered into settlements with the plaintiff s to bring an end to the unpleasant matter and once again focus all of our energy forwards. KRONES had already recognised provisions relating to the proceedings in the 2011 fi nancial statements. We increased the provision in the third quarter of 2012. As a result, a one-time expense of €37.8 million reduced earnings before taxes for the fi nancial year 2012.

Our company's operations performed well in 2012 despite the diffi cult economic environment. KRONES grew further thanks to our strong position in the emerging markets. Consolidated revenue was up 7.4% over 2011, to €2,664.2 million. Earnings before taxes rose from €74.6 million in the previous year to €97.9 million. Given the positive operating trend, we have decided to propose a dividend of €0.75 per share to the shareholders' meeting for the fi nancial year 2012, which is €0.15 more than in the previous year.

KRONES intends to continue to grow profi tably in the medium and long term. The basis for this growth is our Value strategy programme, with which we made excellent progress in 2012. We invite you to read more about the programme on pages 18 through 39. Megatrends off er great potential for growth. According to studies by the World Bank, 500 million people have escaped poverty in the last 30 years in China alone. That does not mean that this population's consumption is equal to Western standards. But rising prosperity is likely to drive steady growth in demand for packaged beverages and foodstuff s in the years ahead. This is true not only for China but also for other regions in Asia as well as for Africa and South America, where urbani-

»KRONES is very well positioned in the emerging markets. That is a solid basis for further growth.«

Volker Kronseder Chairman of the Executive Board

sation is advancing. More and more people are moving to the cities and adopting urban lifestyles and consumer behaviour. To ensure that KRONES can seize all of these market opportunities, we invested heavily in our international service business once again in 2012. This investment is refl ected in the size of our workforce outside Germany, which increased by 385 year-on-year in 2012. We will continue to grow our team in important markets in the years ahead – because being close to our customers is key to success in our industry.

But that does not mean KRONES is turning its back on Germany. On the contrary, we are also investing heavily in our sites here. For example, in 2012 we began construction on a production site for EVOGUARD valves in Nittenau. In Neutraubling, we are building a central logistics centre for our service business. One investment that means a great deal to me personally is the new training centre at our corporate headquarters, which is twice the size of its predecessor. The current generation of young talent began using the new facility in July 2012.

KRONES has started the year 2013 with great energy. Aft er all, the »drinktec« trade fair takes place this year from 16 to 20 September. The world's largest trade fair for the beverage and packaging industry is held every four years in Munich and always lends our industry important momentum. We will present several highlights from our innovative product range at this year's fair.

In January, KRONES began to reposition itself in the fi eld of material fl ow technology. We acquired a 26% stake in the profi table intralogistics solutions provider KLUG GMBH and also signed a cooperation agreement with the company to ensure that KRONES can continue to deliver these services to our customers. Our own material fl ow technology operations will be discontinued over the course of 2013. This division of KRONES has consistently generated considerable losses despite relatively low sales.

Finally, on behalf of the Executive Board, I would like to thank every one of our 11,963 employees for their dedication in 2012. Our highly skilled and motivated people are the assurance that we will continue to »create value together« in 2013 and beyond.

Volker Kronseder Chairman of the Executive Board

Prosperity is increasing worldwide. And KRONES is benefi ting from this trend.

KRONES has repositioned itself in the fi eld of material fl ow technology.

⁶ The Executive Board

Rainulf Diepold *1955 Member of the Executive Board since 1996. Sales and Marketing.

Thomas Ricker *1968 Member of the Executive Board since 2012. Technology, Research and Development.

Werner Frischholz *1951 Member of the Executive Board since 2003. Operations and Service.

Christoph Klenk *1963 Member of the Executive Board since 2003. Finance and

Information Management.

Volker Kronseder *1953 Member of the Executive Board since 1989. Chairman since 1996. Human Resources and Corporate Communications.

Ladies and Gentlemen,

2012 was a challenging year for KRONES. Our operating activities developed well despite the diffi cult economic situation. However, a one-time expense impacted the company's earnings for last year. The expense resulted from settlement payments KRONES made to end its legal disputes in the USA. The proceedings related to the fi nancial scandal involving the bankruptcy of the US company Le-Nature´s. The Supervisory Board devoted considerable time and energy to the legal proceedings in the USA in 2012.

Despite the burden to earnings, the Supervisory Board welcomes the fact that the company was able to settle the legal disputes, which had been ongoing since October 2008, and therefore eliminate the risk of even greater losses for KRONES.

Advising and oversight

In 2012, the Supervisory Board of KRONES AG continuously oversaw and advised the company's Executive Board as prescribed by the law and the articles of association. Five regular and two extraordinary Supervisory Board meetings were held. The Board regularly obtained information from the Executive Board about the progress of business, the company's fi nancial position, and the company's strategy and risk management in the form of written and oral reports, both in and outside the Supervisory Board meetings.

The Supervisory Board's fi rst meeting of the year was convened on 21 March 2012. The Executive Board presented the preliminary consolidated fi nancial statements for 2011 and provided explanations for the group's key fi nancial performance indicators. The Executive Board then presented its business report, which covered the current business situation and the outlook for the KRONES Group. In addition, the Executive Board informed the Supervisory Board about the current status of the legal proceedings in the USA.

Representatives from KRONES' auditing fi rm were present for a portion of the Supervisory Board meeting on 23 April 2012. The auditors explained the annual fi nancial statements for 2011 to the Supervisory Board and provided a detailed overview of the areas on which their review focused. Following the auditors' comprehensive remarks, the Supervisory Board approved and thus adopted the 2011 annual fi nancial statements and the 2011 consolidated fi nancial statements along with the management report and consolidated management report for the fi nancial year 2011. The Supervisory Board and Executive Board then discussed the agenda for the annual shareholders' meeting of KRONES AG, which would be held on 13 June 2012. The Boards agreed to propose to the annual shareholders' meeting that a dividend of €0.60 per share be paid out for the fi nancial year 2011. Another topic of this Supervisory Board meeting was KRONES' strategy as based on the mission statement and the Value programme and the strategic positioning of the company's segments.

Ernst Baumann Chairman of the Supervisory Board

The Supervisory Board held its constitutive meeting on 13 June 2012, following the annual shareholders' meeting. The Board re-elected Ernst Baumann Chairman of the Supervisory Board and Werner Schrödl Deputy Chairman. Mr. Baumann welcomed to the Supervisory Board Klaus Gerlach, whom employees had elected as an employee representative. Mr. Gerlach replaced Anton Schindlbeck, whom Ernst Baumann thanked for his many years of service.

In the fourth regular meeting of the Supervisory Board, on 19 September 2012, the Executive Board explained current business development and presented its outlook for the year 2012 as a whole. The Supervisory Board was also informed about the current status of the legal proceedings in the USA.

An extraordinary meeting of the Supervisory Board was held on 15 October 2012. The legal proceedings in the USA were the sole agenda item. The Executive Board informed the Supervisory Board in detail about the current situation. It became clear that the company could bring an end to the proceedings through settlements. The Supervisory Board and the Executive Board resolved to increase the provision for settlement payments.

The Supervisory Board convened a work session on 20 November 2012. In this meeting, the Board discussed topics including the compensation system for the Executive Board and the effi ciency of the Supervisory Board's work. The Supervisory Board Committee presented the company's risk management report.

The Supervisory Board convened its fi ft h regular meeting for 2012 on 21 November. This meeting's main focus was on the results for the third quarter of 2012 and on planning for the fi nancial year 2013. The Executive Board presented, among other things, its sales, production, and human resources planning. In addition, the Executive Board informed the Supervisory Board about its plans for increasing KRONES' fl exibility and explained how it is managing the company's liquidity.

Duties and activities of the Supervisory Board Committee

The Supervisory Board Committee consists of Supervisory Board Chairman Ernst Baumann and Deputy Chairman Werner Schrödl as well as the following members of the Supervisory Board: Norman Kronseder, Graf Philipp von und zu Lerchenfeld, Josef Weitzer, and Johann Robold. The Supervisory Board Committee oversees the accounting and fi nancial reporting process and the audit of the fi nancial statements and prepares corresponding proposals for resolutions for the Supervisory Board. The Committee also prepares the Supervisory Board's review of the annual fi nancial statements, the management report, and the auditor's report for the separate and consolidated fi nancial statements and makes recommendations. In addition, the Supervisory Board Committee monitors the eff ectiveness of the internal control system, the risk management system, and the internal audit system.

Before the Supervisory Board meeting held to ratify the fi nancial statements on 23 April 2012, the Supervisory Board Committee prepared the Supervisory Board's review of the annual fi nancial statements, the management report, and the auditor's report on the separate and consolidated fi nancial statements for 2011.

At its constitutive meeting on 13 June 2012, the Supervisory Board appointed Graf Philipp von und zu Lerchenfeld chairman of the Supervisory Board Committee.

The Supervisory Board concurs with the audit result

The annual fi nancial statements of KRONES AG, the consolidated fi nancial statements, the management report for KRONES AG, and the consolidated management report prepared by the Executive Board for the period ended 31 December 2012 were examined by the auditors elected by the annual shareholders' meeting, KPMG Bayerische Treuhandgesellschaft Aktiengesellschaft Wirtschaft sprüfungsgesellschaft Steuerberatungsgesellschaft , and each received an unqualifi ed audit report. The audited annual fi nancial statements and consolidated fi nancial statements, the management report for KRONES AG, and the consolidated management report prepared for the period ended 31 December 2012 were submitted to all members of the Supervisory Board in good time for the members' own review. The audited fi nancial statements and management reports were the subject of the Supervisory Board meeting held to ratify the fi nancial statements on 19 April 2013. Representatives of the auditing fi rm also participated in the meeting and reported to the Supervisory Board on their fi ndings and the areas on which their review focused.

The Supervisory Board noted and approved the audit result. The fi nal results of the examination by the Supervisory Board prompted no objections. The Supervisory Board has approved the annual fi nancial statements for KRONES AG and the consolidated fi nancial statements as well as the Executive Board's proposal for the appropriation of retained earnings. The annual fi nancial statements for KRONES AG are thereby adopted.

The members of the Supervisory Board would like to thank the Executive Board and all employees for their excellent work in 2012.

Neutraubling, April 2013

The Supervisory Board

Ernst Baumann Chairman of the Supervisory Board

Members of the Supervisory Board

Following fulfi lment of the requirements for application of the German Codetermination Act [Mitbestimmungsgesetz] of 1976 in 1987, the Supervisory Board was extended from six to twelve members. Pursuant to § 8 (1) of the articles of association, six members are elected by 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.

Ernst Baumann

Chairman of the Supervisory Board * since 3 April 2012

ZF FRIEDRICHSHAFEN AG

Werner Schrödl**

Chairman of the Central Works Council Deputy Chairman of the Supervisory Board * since 1 January 2012 VERWALTUNGSRAT DER BAYERISCHEN BETRIEBSKRANKENKASSEN

Klaus Gerlach**

Senior Vice President Material Management since 13 June 2012

Dr. Klaus Heimann**

Director of the Youth, Training and Qualifi cation Policy Division of IG METALL

Dr. Jochen Klein

Managing director of I-Invest GmbH * DÖHLER GMBH * HOYER GMBH * since 1 October 2012 CONSORTIUM GASTRONOMIE GMBH

Norman Kronseder Farmer and forester * BAYERISCHE FUTTERSAATBAU

Philipp Graf

GMBH

von und zu Lerchenfeld Member of the Bavarian Landtag, Dipl.-Ing. agr., auditor and tax consultant

Dr. Alexander Nerz Attorney

Johann Robold**

Member of the Works Council

Anton Schindlbeck**

Senior Vice President Sales LCS until 13 June 2012

Petra Schadeberg-Herrmann Managing partner at KROMBACHER FINANCE GMBH, SCHAWEI GMBH, DIVERSUM HOLDING GMBH & CO. KG

Jürgen Scholz**

1st authorised representative and treasurer of the IG METALL administrative offi ce in Regensburg * INFINEON TECHNOLOGIES AG

Josef Weitzer**

Deputy Chairman of the Works Council * SPARKASSE REGENSBURG

* 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.

Q1

Business at KRONES was good in the fi rst three months of 2012. Revenue was up 6.9% on the previous year, to €648.6 million. New orders rose 5.0% to €659.8 million. From January to March 2012, KRONES generated €32.5 million in earnings before taxes.

At the end of January, KRONES released news regarding the company's legal disputes in the US. KRONES entered into a mediation process with several plaintiff s to explore options for ending the long-running proceedings.

At the Anuga FoodTec trade fair Cologne, Germany, KRONES unveiled its twin-fl ow process, in which juice and fruit bits are handled in two completely separate product fl ows and meet in the bottle. This process preserves the structure of the precious fruit chunks and saves resources.

KRONES' share price fl uctuated sharply in the fi rst quarter. It fi rst climbed from around €37 to €44 in just a few weeks' time. Then it fell again to close the fi rst quarter at €37.62, only about 2% higher than it had started the year.

Q2

New orders: €668.0 million

Revenue: €641.1 million

Earnings before taxes: €31.5 million

Share price at 30 June 2012: €39.77

The outlook for the global economy worsened in the second quarter. KRONES fared well despite the diffi cult environment. At €641.1 million, quarterly revenue was down 1.5% year-on-year but still within our target range. The same was true for earnings before taxes, which came to €31.5 million (€2.5 million less than in the second quarter of 2011).

The annual shareholders' meeting was held on 13 June in Neutraubling. The Executive Board informed shareholders about the current status of the Value strategy programme and explained KRONES' targets. Shareholders received a dividend of €0.60 per share for the fi nancial year 2011, which is €0.20 more than in the previous year.

The mood on the stock markets was sour in the period from April to June, due largely to fears over the future of the euro. The DAX lost around 8% in the second quarter. The MDAX mid-cap index dropped 3.3%. The KRONES share fared better, gaining 5.7% in the period from April to June.

Q3 Q4

New orders: €639.5 million

Revenue: €607.9 million

Earnings before taxes: –€13.6 million

Share price at 30 September 2012: €41.65

On 6 July, Executive Board Chairman Volker Kronseder helped inaugurate KRONES' new training centre in Neutraubling. The new hall is twice the size of the previous one. It is equipped with state-of-the-art machines on which young trainees can gain skills and knowledge that are important for their future careers. The investment in the new training centre is another example of KRONES' ongoing commitment to training young talent.

KRONES posted a loss for the third quarter of 2012. The reason for the negative result was that the company increased its provision for the legal disputes in the US, resulting in a one-time expense. Operating earnings before taxes (EBT), that is EBT without accounting for the one-time expense, were up year-on-year in the third quarter, from €14.9 million to €27.0 million.

The KRONES share price rose further in the third quarter. In all, it climbed 4.7% to €41.65 in the period from July to September.

New orders: €753.8 million

Revenue: €766.6 million

Earnings before taxes: €47.5 million

Share price at 31 December 2012: €47.00

In early November, KRONES was able to end the legal disputes in the US that had been ongoing since October 2008. KRONES decided to settle with the plaintiff s in order to eliminate the possible risks arising from the proceedings, which might otherwise have dragged on for years.

KRONES was well represented at the trade fairs that take place each fall. The Brau Beviale in Nuremberg, a major capital goods fair for the beverage industry, went especially well for KOSME. Customers showed great interest in the products off ered by our smallest segment.

In the period from October to December, revenue was up 15.1% year-over-year to €766.6 million. With that, KRONES grew 7.4% in 2012. Fourth-quarter earnings before taxes came to €47.5 million.

The KRONES share had a good fi nal quarter, benefi ting particularly from the improved sentiment on the stock markets in general. The KRONES share price climbed nearly 13% in the last quarter of 2012, to €47.00.

KRONES off ers machinery and complete systems for fi lling and packaging and for beverage production. KRONES' customers include breweries, beverage producers, and companies from the food, chemical, pharmaceutical, and cosmetic industries. KRONES off ers all of the products and services they need from a single source – from constructing new beverage plants to getting the fi nished product out the door. The company is organised in three segments:

Product fi lling and decoration

KRONES' core business area – by far the company's largest and most profi table segment – off ers machines and complete lines for fi lling, packaging, labelling, and conveying products. Machines for producing PET containers and converting used plastic bottles into food grade recycled material (PET recycling systems) are also part of this segment.

2012 2011 EBT (€ million) 119.2 108.9 EBT margin (%) 5.3 5.1 Employees* 10,513 10,045

2,137

1,861

2,265

2009 2010 2011 2012

	Beverage production/process
technology

This segment includes brewhouse and cellar systems (i.e. products for breweries). Equipment used for treating sensitive beverages such as milk and for producing dairy drinks and fruit juices is also part of this KRONES segment. Material fl ow technology/ intralogistics is also part of the »beverage production/process technology« segment.

	2012	2011
EBT (€ million)	–13.6	– 19.3
EBT margin (%)	–4.5	–7.4
Employees*	671	664

Revenue (€ million) 2008 260 2009 2010 2011 2012 ^{306 232 274 310}

Low output range (KOSME)

Our subsidiary KOSME off ers a product range similar to that of our »machines and lines for product fi lling and decoration« segment, but for the lower output range. With KOSME, we are able to serve smaller and mid-sized companies that do not need high-speed machines but nevertheless are committed to quality. Thus, KOSME perfectly complements KRONES' core business.

	2012	2011
EBT (€ million)	–7.6	–15.0
EBT margin (%)	–8.1	–17.9
Employees*	495	477

Revenue (€ million)

KRONES AT A GLANCE

2008

1,983

Revenue (€ million)

*Consolidated group

1,512

KRONES makes use of the advantages of 15 that Germany off ers as a business location, producing the lion's share of its machines and lines in Germany. Our subsidiary KOSME produces in Austria and Italy.

• Machines and lines for product fi lling and decoration
• Machines and lines for beverage production/process technology
• Machines and lines for the low output range (KOSME)

KRONES Group production sites for new machinery

A KRONES fi lling line is composed of innovative individual machines and systems that produce, fi ll, label, and pack bottles. Custom IT solutions from KRONES control and document all processes within the line.

10 Internal logistics

Products are stored in a state-ofthe-art high-bay warehouse until it's time for them to be delivered. Sophisticated software manages all inventories and fi lls customer orders fully automatically and just in time.

5 Conveyors

On KRONES lines, containers are moved quickly and reliably from one stage of production to the next. Our conveyors are equipped with state-of-the-art control technology.

9 Packing and palletising

KRONES' Robogrip high-speed palletiser is a versatile robot with a reliable grip. It uses clamping gripper heads to pick up an entire row of packs and accurately place it on the waiting pallet.

8 Packing and palletising

The Robobox pack collating system positions and distributes one-way packs quickly and fully automatically, setting the stage for reliable, precise palletising.

3 Process technology

Beverage production systems combine various components to produce readyto-fi ll beverages like sodas and sparkling juices.

4 Filling

A variety of fi lling processes are available for each type of beverage and each type or shape of container. In KRONES' Volumetic VODM fi ller, an inductive fl ow meter precisely determines the correct fi ll quantity.

2 Labelling

Bottles have to look appealing for consumers to buy them. Labels play a crucial role here. KRONES off ers a broad range of highperformance labelling machines.

1 Plastics technology

On this machine, PET preforms are blow-moulded into bottles. With the new generation, Contiform 3, up to 2,250 PET containers can be produced per cavity per hour.

6 Packing and palletising

The options for packaging are myriad. For this reason, packaging lines need to be highly versatile. The various models of KRONES' Variopac Pro fully automated packer cover all types of packaging.

7 Packing and palletising

Start

In the shrink tunnel, the plastic fi lm that encases a pack of containers is heated, causing the fi lm to shrink and hold the containers fi rmly in place.

3 Process technology

Tanks play a key role in beverage production. KRONES delivers the highest quality storage and production tanks to suit customers' individual needs.

Value – creating value together

The global economy is becoming increasingly volatile. Our markets and our customers' demands are also changing fast. The Value strategy programme is KRONES' response to these challenges. The measures that make up Value will enable us to consolidate our leadership on the market for the long term and reach our ambitious growth and earnings targets by 2015.

KRONES made excellent progress already last year. But we know that we are only at the beginning of a long »Value« road and will continue to systematically implement the programme in 2013.

Settlement of lawsuits in the USA

Carefully weighing opportunities and risks has always been an important part of KRONES' corporate strategy. That is why we settled the legal disputes that have been ongoing in the USA since October 2008. The proceedings related to the fi nancial scandal involving the bankruptcy of the US company Le-Nature´s.

The settlement is not an admission of guilt. However, the potential risks could have cost the company many times the amount of the settlements reached in November 2012. We did not want to expose our company to these risks. Aft er factoring in the contribution from the relevant insurances, the total net impact on KRONES' pre-tax earnings amounts to €74.5 million (approximately USD100 million), of which €36.7 million (USD47 million) had already been charged against income in the preceding year.

Although the settlement payments are painful for KRONES, we are relieved to have closed this chapter and to be able to once again focus all of our energies on implementing the Value strategy.

Our target: 7/7/20

We have set ambitious goals through 2015 to keep KRONES on course for sustainable, profi table growth. 7/7/20 stands for:

• 5 to 7 percent more sales revenue per year
• 7 percent EBT margin (pre-tax return on sales)
• 20 percent ROCE (Return on Capital Employed)

»Growth and profi tability remain the key pillars of our Value strategy programme.«

Christoph Klenk Chief Financial Offi cer The market for packaging machinery will continue to grow faster and more consistently than the global economy. The steady growth of the middle class in the emerging economies and increasing urbanisation remain the biggest growth drivers. These trends are resulting in increased demand for industrially packaged food and beverages and, thus, rising demand for KRONES products, which will remain relatively stable even when the global economy does not.

In mature markets like Europe and North America, food and beverage producers increasingly need to use a variety of packaging options in order to stand out from the competition. As a result, many beverage producers plan to signifi cantly increase the variety of their end products in the years ahead. And for that, they will also need innovative solutions from KRONES.

For these reasons, we are confi dent that we will achieve our growth target of 5 to 7 percent per year on average – under normal economic conditions – and consolidate our position as market leader.

We also want to generate an EBT margin (pre-tax return on sales) of 7 percent. In 2012, this ratio was 5.1 percent when adjusted to exclude the expense relating to the legal disputes in the USA.

Return on capital employed (ROCE) is an important target and performance indicator within the Value programme. We want to achieve an ROCE of 20 percent (2012: 13.6% adjusted to exclude the expense relating to the US legal disputes). To improve our ROCE, we need to not only improve earnings (EBIT) but also optimise our employed capital. To this end, KRONES will focus on further reducing working capital in relation to sales revenue.

Our strategy: Value

»Value« is sharply focused on the individual, local needs of markets and customers. Customer satisfaction is of central importance to us. We deliver high-quality, high-availability machines, lines, and services. We want to off er our customers the best, fastest service at every stage – from the initial contact to production and installation to maintenance and spare parts delivery. To achieve this, KRONES invested heavily in expanding our local service teams worldwide in 2012. Our innovations (see page 80) are also guided by our customers' needs, to ensure that they can produce high quality at competitive prices.

Our people are a key factor for successfully implementing the measures that are bundled into Value. Their skill and commitment is crucial to KRONES' ability to seize the opportunities presented by the food and beverage packaging market. With the workforce expansion we undertook in 2012, particularly abroad, we are in an excellent position to meet our growth targets – and create value together.

Continued focus on profi tability

To improve our profi tability and ROCE, we have to improve our cost structures. Reducing costs in all three segments remains an important topic within Value. We made good progress in this respect in the reporting period.

In our core segment, machines and lines for product fi lling and decoration, we achieved this by making processes faster and simpler. The main thrust here is modularising assemblies and machines. The more modular our lines are, the shorter our lead times and the better our purchasing conditions will be. Our investments in logistics and paced assembly helped boost productivity considerably and reduce working capital in 2012.

In 2013, KRONES will further optimise cost structures in its core segment. We will expand our local purchasing – that is, we will procure more and more of our materials locally for our international sites – in order to reduce our cost of goods purchased. In addition, by having more people on the ground in our customers' regions, we are also improving the cost associated with installing and commissioning our lines. Another important measure for 2013 is the expansion of our global value chain. Certain parts will now only be manufactured at the optimal location.

In our process technology segment, we made great strides in improving risk management in the reporting period by signifi cantly expanding project management, from order acceptance to delivery. In 2012, we also began developing structural strategies for our process technology segment. Our restructuring in the fi eld of material fl ow technology at the start of 2013 is a big fi rst step toward increasing the segment's long-term profi tability. Our equity investment in and consequent cooperation with KLUG GMBH (see page 102) will enable us to continue to provide our customers with a complete range of intralogistics solutions. Since KRONES will be discontinuing its own activities in this fi eld in 2013, we will no longer be posting losses for the material fl ow technology division from 2013 onward.

We intend to further optimise structures in our process technology segment this year. Our aim is also to increase capacity utilisation and thereby make better use of resources and improve price quality. We are also further expanding our process technology services business to include components and soft ware upgrades.

We made good progress with KOSME, our segment for the low output range, in 2012. We changed the sales structure and revised the product portfolio. Overall, we achieved our 2012 goal for KOSME, halving the segment's losses over 2011, and are confi dent that the segment will be out of the red in 2013. To achieve this, we will further reduce costs and restructure the segment's aft er-sales service.

To achieve our targets, we have to further reduce costs in all three segments.

Growth through internationalisation

The emerging economies in Asia, South America, and Africa off er the biggest potential for growth in our market. Apart from new machinery sales, KRONES intends to further consolidate the already-strong position of our services business in these markets. In 2012, KRONES generated 62 percent of sales revenue in the emerging markets.

Expanding our global service structures is one of the most important actions we are taking to achieve our high growth targets and to better prepare for the volatilities of each market. KRONES needs more people on the ground in the regions to continue to provide the best service in the industry – to be closer and more responsive to our customers. That is why KRONES is hiring additional qualifi ed staff from within the respective regions, particularly in our LCS (Lifecycle Service) Centres and local service offi ces. We believe it is very important that our employees speak our customers' language and understand their culture.

Case in point: China

We have steadily expanded our LCS Centre in Taicang, China, over the past several years and have plans for further signifi cant growth in 2013. We plan to bring the workforce in China up to nearly 500 by the end of 2013, from about 200 in 2010. We intend to use the same model to expand our other international LCS sites and, thus, increase our share of the aft er-sales segment, particularly in the emerging markets.

Growing our components business

Expanding our components business is a main focus for our process technology segment. Our EVOGUARD valve technology is one example of this eff ort. The EVOGUARD series covers all of the valves needed in beverage operations. And with EVOGUARD aseptic valves, KRONES can also supply other industries such as chemicals, pharmaceuticals, and biotech. For this reason, we have decided to establish EVOGUARD as an independent company. Our goal for 2013 is to quickly establish the valve series in other industries and expand the EVOGUARD product range to include additional components.

Our team knows how important the Value programme is for KRONES' future. Therefore, we are confi dent that we will make great progress on the road to Value in 2013. The following pages show concrete examples of how KRONES im plemented Value in the reporting period.

Christoph Klenk Chief Financial Offi cer

Further growth is planned for KRONES' profi table components business in the years ahead.

Growing profi tably

KRONES is pursuing important strategic goals with the Value programme. Th e focus is on sustainable, profi table growth. Th e following pages contain concrete examples of how we are implementing Value in various parts of the company.

Growing profi tably

… through internationalisation

Th e emerging economies in China, the Asia-Pacifi c region, South America, and Africa off er KRONES big growth opportunities. With a revenue share totalling 62%, the emerging markets already account for a large portion of our business. Apart from new machinery sales, KRONES intends to further consolidate the already-strong position of our services business in the international markets.

We are expanding our local capacities to further strengthen our presence in the emerging markets, focussing particularly on our aft er-sales service business. To provide our customers with the best possible service, KRONES needs more people on the ground who speak our customers' language and understand their culture – to be closer and more responsive to our customers.

Case in point: We have steadily expanded our LCS Centre in Taicang, China, over the past several years. By the end of 2013, we will have nearly 500 people in China, delivering high-quality products and services to our customers – fast.

Growing profi tably

… through components business

As part of the Value programme, Krones intends to grow its activities in the profi table components market. Th at will not only increase our own share of the value added in the production of our machines and lines. It will also enable us to off er our components to customers outside our current target markets. EvoGuard valve technology, which was developed in-house, is an important fi rst step in this direction.

The EVOGUARD family of valves includes all of the valve designs required in the beverage industry. It even includes valves that are ideally suited for applications outside the food and beverage industry, such as chemicals, pharmaceuticals, and biotech. With EVOGUARD, we are tapping completely new customer potential. With EVOGUARD valves, we can now also serve the lucrative aft er-sales service business in our process technology segment.

Growing profi tably

… through a large installed base

In the mature markets, the growing variety of our customers' products is supporting KRONES' growth. To withstand rising competitive pressures, beverage producers have to update and upgrade their existing lines. KRONES provides the products and services to accomplish that.

Competitive pressure is high in the international beverage industry. To distinguish themselves from the competition, KRONES' customers need fl exible lines that can effi ciently handle their highly individualised packaging.

KRONES has the know-how to quickly respond to customers' changing needs with retrofi ts and upgrades. One such example is an upgrade that enables customers to handle lighter-weight PET bottles with shorter screw caps on their existing machinery. That is valuable added value. Because it enables customers to use less packaging material and thus reduce their costs.

Growing profi tably

… through innovation

To grow profi tably, a company has to set itself apart from the competition with innovative products. Customers need lines that are dependable, powerful, and effi cient. All new and continuing developments at KRONES are informed by these requirements. Our aim is to provide our customers with solutions that ensure reliable, cost-eff ective production.

One example of our innovative power is the ErgoBloc L, a bloc solution for the wet end of the line that can fi ll up to 81,000 containers per hour. KRONES made targeted innovations to optimise each of the individual machines for use in a bloc system and then linked them together with intelligent control systems.

These sophisticated measures have made the ErgoBloc L far more costeff ective than previous line concepts. Total operating costs are far lower than those of conventional fi lling lines. The bloc also has a 25% smaller footprint.

⁴⁰ Th e KRONES share

2012 was a good year overall for stocks. Th e central banks' loose monetary policy drove share prices upward. KRONES' share price climbed 27.9% in 2012.

Low €35.75

• Stock markets benefi tted from monetary easing
• KRONES share price up 27.9%
• Dividend raised €0.15 to €0.75 per share

The stock markets were quite volatile last year due to the sovereign debt and euro crises. A sustained upswing did not begin until the European Central Bank (ECB) took an uncompromising stance to preserve the euro. The price of the KRONES share advanced by 27.9% in 2012 to €47.00

The stock markets in 2012

The euro and sovereign debt crises kept a tight grip on the world's major stock markets in 2012. The situation in Europe threatened to escalate in the second quarter, and stock prices plummeted. Fearing the euro zone would fall apart, investors sold equities and put their money primarily in German federal government bonds (Bunds). Germany's blue chip stock index, the DAX, declined from around 7,200 points in March to below 6,000 points in the beginning of June 2012. The European Central Bank (ECB) is the main reason why 2012 was still a very good year on the stock market. Its president, Mario Draghi, vowed at the end of July that the ECB would do whatever was necessary to preserve the euro, including unlimited purchasing of government bonds from fi nancially distressed euro member states.

That statement ignited a powerful, sustained rally on the stock markets. Because the US Federal Reserve continued its expansionary monetary policy, international investors had plenty of cheap liquidity available for stock purchases. Consequently, share prices advanced despite worsening economic and corporate headlines. The DAX climbed 29.1% to 7,612 points in 2012. The last time the leading German index rose so strongly was seven years ago. Stocks in the rest of Europe also benefi ted from investors' growing appetite for risk. Investors did not shy away even from shares of crisis-affl icted European fi nancial enterprises. Altogether, the EURO STOXX 50 index gained 13.8% last year.

In the USA, the presidential election and budget consolidation drew the most interest from stock market participants. Gaining 7.3%, the leading US index, the Dow Jones, did not keep pace with the performance of German and European stocks in 2012. However, it should be noted that the Dow had advanced slightly in 2011 while the DAX had slumped more than 20%. The Tokyo stock exchange can look back on a very good year. The Nikkei Index was up 23.0% in 2012, boosted by a weak yen benefi ting Japanese exporters and by economic stimulus programmes.

KRONES share price up sharply

Demand was very high in 2012 for stocks in the MDAX, the index for mid-cap companies including KRONES. Many of the stocks listed in the MDAX are of companies with very good market positions and solid fi nances. Because investors increasingly focused on such stocks, the MDAX reached a new all-time high in 2012. At the end of the year, the index stood at 11,914 points, which was 33.9% higher than in the previous year.

»A lot happened at KRONES in 2012. We kept the capital markets informed of all developments in a timely and transparent manner.«

Olaf Scholz

Senior Vice President of Investor Relations

KRONES' share price rose almost as much as the MDAX in 2012. The mid-cap index hit a record high.

More of the latest information is available at www.krones.com/en/ investors.php

Aft er good start to the year 2012, the KRONES share price came under heavy pressure later in the fi rst quarter. Investors were clearly uneasy about the legal disputes involving KRONES in the USA following our comprehensive report to investors on that subject at the end of January. The share hit its low for the year at €35.75 on 10 April. The price recovered from that bottom and rose to just under €40 by the end of June 2012. The KRONES share signifi cantly outperformed the overall market in the second quarter. Our earnings in the fi rst quarter of 2012 and the outlook for the full year bolstered investor confi dence.

Stock market sentiment was generally good in the second half of 2012, and the KRONES share benefi ted from that. The settlement of our US litigation in the fourth quarter was another positive infl uence. The KRONES share hit its highest closing price in 2012 at €47.25 on 13 December. It stood at €47.00 at the end of the year, 27.9% higher than at the beginning.

Key fi gures for the KRONES share
At 31 December		2012	2011	2010
Number of shares	(million)	31.59	31.59	31.59
Free cash flow per share*	€	1.01	–0.25	0.09
Equity per share*	€	27.72	26.04	25.16
Earnings per share*	€	2.22	1.45	1.68
Price/earnings (P/E) ratio	€	21.2	25.4	27.9
Dividend per share	€	0.75**	0.60	0.40
High 2012	€	47.25	59.06	47.05
Low 2012	€	35.75	33.87	34.35
Year's closing price	€	47.00	36.76	46.95

* Based on total number of shares less 1.43 million treasury shares

** Figures as per proposal for appropriation of retained earnings

Portrait of the KRONES share

KRONES shares are no par value ordinary bearer shares. Each share carries one vote at the annual shareholders' meeting. The total number of shares is 31,593,072. The stock has been listed and available for trading on all German stock exchanges since 29 October 1984. In the fi nancial year 2012, daily trading volume on the Frankfurt stock exchange and in Xetra trading averaged around 46,000 shares in total. More than 98% of trading was done on the XETRA electronic trading system. KRONES is included in the MDAX share index, the German stock exchange's mid-cap index.

Key data for the KRONES share
Number of shares	31,593,072
German securities identification number	633500
ISIN	DE0006335003
Ticker symbol	KRN

Shareholder structure

The Kronseder family owns a 53.09% majority of the company's share capital. KRONES bought back 1,425,421 of its own shares in 2009 and continues to hold them as treasury shares. They represent 4.51% of the share capital. The free fl oat is 42.40%.

www.krones.com/en/investor_ relations/shareholder-structure. php

Dividend to increase from €0.60 to €0.75 per share

KRONES' long-term dividend policy aim is to distribute 20% to 25% of profi t. Earnings for the fi nancial year 2012 were burdened by the one-time eff ect relating to the US litigation. The Executive Board and the Supervisory Board have decided to take operating earnings as the basis for the dividend. They will propose to the annual shareholders' meeting on 19 June 2013 to pay a dividend of €0.75 per share for 2012 (previous year: €0.60).

* as per proposal for appropriation of retained earnings

KRONES relies on open investor relations

We will continue to make every eff ort to meet the growing demands of international investors and analysts. That includes transparent, timely, and candid communication. That KRONES fully informed the capital market of its legal disputes in the USA several times last year and clearly stated their impact on earnings is an example of that.

Chief Financial Offi cer Christoph Klenk and KRONES' Senior Vice President of Investor Relations, Olaf Scholz, went on several roadshows in 2012 to international fi nancial centres like New York, London, Paris, Zurich, Stockholm, and Frankfurt, where they visited investors and analysts. The focus was on providing the market experts with up-to-date information about our Value programme. We furthermore participated in numerous investor conferences at home and abroad again in 2012.

The »drinktec« trade fair will take place in Munich from 16 to 20 September 2013. The most important trade fair for the international beverage and packaging industry is held every four years. We held a meeting with investors and analysts at the 2009 drinktec at which the Executive Board gave market experts a tour of KRONES' booth. Because of the positive response to that event, we plan to hold a similar one this year.

Annual shareholders' meeting in 2012 approves dividend increase

KRONES AG held its 32nd annual shareholders' meeting in Neutraubling on 13 June 2012. By a large majority, the shareholders approved the dividend payout of €0.60 per share proposed by the Executive Board and the Supervisory Board for 2011, which was €0.20 higher compared to the previous year. The other agenda items submitted for a vote were similarly approved.

KRONES will improve its investor relations even further.

⁴⁶ Economic environment

Th e economic environment was challenging in 2012. Th e euro area slid into recession due to the debt crisis and growth in the emerging markets slowed considerably. In all, the world economy grew only 3.2% in 2012 (previous year: 3.8%).

GDP growth in 2012

Russia 3.6% India 4.5% Middle East 5.2% Japan 2.0%

• Global economic growth of 3.2% in 2012
• Recession in the euro area
• German machinery sector robust

Momentum of world economic growth diminishing

The sovereign debt and euro crises put a damper on the global economy last year. Businesses reduced their capital spending because of general uncertainty and fear of a protracted crisis. The politically unstable situation in the USA likewise weighed on economic activity. Debates about the tax increases and austerity measures that the USA intends to use to solve its debt problem spoiled consumers' appetite for spending. Consumption is the most important component of US gross domestic product (GDP). In view of the mounting uncertainties, the International Monetary Fund (IMF) lowered its forecast of world economic growth in the course of the year. In the end, the global economy grew 3.2% in 2012 (previous year: 3.8%).

Because the debt and euro crises also aff ected the emerging markets and developing countries, economic momentum diminished in those regions. China's economy expanded by 7.8% in 2012. A year before, its growth still amounted to 9.3%. In India, GDP increased by 4.5% last year compared with 2011 (previous year: +7.4%). The Middle East/North Africa region registered a sharp rise of GDP in 2012 (+5.2%).

Japan, a major industrialised nation, is far from achieving such rates of increase. Its GDP grew by 2.0% year-on-year in 2012. Japan had slid into recession in 2011 in the wake of the earthquake and tsunami disaster. The US economy expanded last year by 2.3%. The number of unemployed in the USA was too high and consumer spending propensity too low to drive more signifi cant growth.

In the euro area, GDP dipped by 0.4% in 2012. The countries mainly responsible for the recession in the European Monetary Union were Italy, with a GDP decline of 2.1%, and Spain, where GDP shrank by 1.4% year-on-year. France registered slight economic growth of 0.2% in 2012.

The global economy grew 3.2% year-on-year in 2012.

Change in gross domestic product (%)

German GDP up 0.7% in 2012

Economic activity did not suff er as much in Germany from the debt and euro crisis as in the rest of the euro zone. One reason is that German industrial companies are well-positioned on the emerging markets. Altogether, German exports rose 3.4% year-on-year in 2012. Consumption also made a positive contribution, thanks in particular to the robust labour market in Germany. Capital expenditures were down, refl ecting the uncertainty about future development of the world economy. Overall, German GDP improved by 0.7% in 2012 (previous year: +3.0%) according to preliminary calculations.

Diffi cult year for the German machinery sector

Rapidly declining orders intake from euro zone countries and weak domestic orders made things diffi cult for German machinery manufacturers in 2012. Nevertheless, the year generally went a little better than expected for the industry. In September, the German Engineering Federation (VDMA) raised its output forecast for 2012 from 0% to plus 2%. Preliminary data show that the industry achieved that target. The value of the goods produced by German machinery manufacturers accordingly totalled around €196 billion in 2012.

The German economy benefi ted from strong exports and German consumer spending in 2012.

The packaging machinery market is growing for the long term

The packaging machinery market worldwide amounted to around €26.5 billion in 2011 and likely grew further in 2012. Measured in terms of packaged products, the food industry is the largest single market for packaging machinery, with a share of 40%. The beverage industry accounts for roughly 20% of sales. Because end-consumer demand for food and beverages is hardly infl uenced by business cycles, the packaging machinery market is less cyclical than other segments of the machinery industry.

Global demand for packaging machinery is growing by 5% to 7% per year on average.

Of the past years, the only year in which the industry registered a signifi cant decline of demand was 2009, the year of the global fi nancial and economic crisis. We believe the market for packaging machinery will grow in the long term by 5% to 7% per year on average. This growth will be driven by megatrends. For one thing, the world's population will steadily increase in the coming decades. All those people will have to eat and drink. For another, the standard of living and consumption will rise more quickly than average in the fast-growing developing countries and emerging markets. That will stimulate demand for packaged food and beverages, as will increasing urbanisation in those regions. In Asia and Africa, more and more people are migrating from the countryside to the large cities and adapting to the lifestyle and consumption patterns of the population there.

The African beverage market is trending steeply upward. Demand for packaged beverages increased by about 7% annually on average in the period from 2009 to 2012. An end of the boom is not in sight. Consumption of water and beer is likely to continue rising more than proportionately.

5.2%

8.1%

Annual average growth rate from 2011 to 2016 Source: Euromonitor

Vietnam Beer Water

Demand for bottled beverages in Vietnam is likely to increase dramatically in the coming years. For this reason, national and international beverage companies are expanding their production capacities. Large amounts of

money are being invested in breweries in particular. The beer market is several times larger than the market for bottled water. But demand for bottled water is growing much faster.

growth rate from 2012 to 2016

Packaged volume (million litres)

The Asia-Pacifi c region's share of global demand for packaging machinery should continue to grow in the future. Its importance has already risen greatly in the past years. KRONES is strongly represented in the region, where it occupies a good market position.

Demand for packaging machinery in Asia has grown rapidly in recent years. The Asian market is now nearly as large as the European market.

Source: VDMA estimate, February 2013

As the world's leading supplier of beverage packaging equipment, KRONES mainly benefi ts from the steady rise of demand for packaged beverages. In 2012, the company generated about 94% of consolidated revenue in business with breweries, soft drink producers, and mineral springs. The food industry accounted for most of the rest. KRONES supplies customers from that segment with machinery and equipment used to fi ll and package food products like milk and dairy drinks, oil, jam, and ketchup. KRONES also provides products and services to customers in the cosmetic, pharmaceutical, and chemical industries.

Demand for packaged beverages increasing steadily

People worldwide are consuming more and more packaged beverages. This yearslong growth trend continued unabated in 2012. According to preliminary data compiled by Euromonitor, a market research institute, global consumption of packaged beverages rose by around 3.7% year-on-year in 2012 to almost 988 billion litres. Euromonitor estimates that total packaged beverage consumption will grow on average by 3.4% annually to around 1,100 billion litres in 2015.

Global consumption of bottled water is growing more than proportionately.

* Beer, wine, spirits ** Energy drinks, sports drinks, tea and coffee

An analysis of demand for diff erent types of beverages reveals especially strong growth in bottled water. Almost 242 billion litres of bottled water were consumed worldwide last year, which is around 6% more than in 2011. Accounting for 24.5% of total beverage consumption worldwide, bottled water ranked nearly as high as alcoholic beverages (24.6%) in 2012.

Water now comes in many diff erent forms, with fl avoured water and functional water becoming more and more popular. Rising health consciousness in industrialised countries is also driving the increase in water consumption, as is the growing need for bottled water in the emerging markets. Global consumption of bottled water is likely to grow at an annual rate of 5.2% on average in the period from 2012 to 2015.

That means that, at the end of 2013, water consumption will already be higher than consumption of packaged alcoholic beverages, which amounted to 243.2 billion litres last year. Of that, some 194 billion litres were beer. In China, beer is quite popular and demand is rising sharply. On the other hand, the markets in North America and Europe are saturated. Global beer consumption and hence demand for alcoholic beverages is therefore likely to grow more slowly than overall beverage consumption in the period to 2015.

China Water

China is the third-largest beverage market aft er North and South America. The Chinese love beer. No other packaged beverage is more popular. Water, the country's second most popular thirst-quencher, has the highest growth rates. Consumption of bottled water is expected to increase by around 9% annually on average in the period to 2017.

2010 22.9 billion litres

2014 34.6 billion litres

2017 44.3

billion litres

Latin America Beer Soft drinks

ECONOMIC ENVIRONMENT

56

Beer/soft drink consumption (million hectolitres)

Colombia	2012	2016
Beer	18.1	22.5
Soft drinks	32.3	34.8
Brazil	2012	2016
Beer	136.9	169.4
Soft drinks	163.9	196.1
Mexico	2012	2016
Beer	68.7	77.1
Soft drinks	162.5	175.2
Venezuela	2012	2016
Beer	19.9	23.1

Source: Euromonitor

Latin America is a large market for beverage producers. Brazil stands out. It is among the top fi ve countries worldwide in terms of beer consumption. Two upcoming major athletic events, the 2014 FIFA World Cup and the 2016 Summer Olympic Games, are likely to stimulate capital spending in Brazil additionally.

Carbonated soft drinks (CSDs) make up another large market segment. Worldwide, about 220 billion litres were probably consumed in 2012, which represents a 22.3% share of the overall market. Soft drinks are especially popular in North and South America. But they are likely to lose market shares in the future. Euromonitor analysts believe that consumption of bottled CSDs will grow on average by 1.7% in the period from 2012 to 2015, which is only half the growth rate of global beverage consumption.

In the milk and dairy drink segment, which accounted for 15.7% of the overall beverage market in 2012, a mixed picture emerges. While demand for plain milk is growing less than proportionately, fruit-fl avoured dairy drinks are becoming increasingly popular. Altogether, the average annual growth rate for milk and dairy drinks is likely to be around 2.8% in the period to 2015.

The rest of the beverage market consists of fruit and vegetable juices (2012: 7.2% share) and »new drinks« (2012: 5.7% share), which include ready-to-drink tea and coff ee as well as energy and sports drinks. Especially because demand for packaged ready-to-drink tea is increasing signifi cantly in Asia, consumption of new drinks is likely to rise in the coming three years by 5.8% on average. Euromonitor expects an average growth rate of 3.0% in the segment of packaged fruit and vegetable juices.

Packaged beverages Share of global consumption	2012 billion litres	%	billion litres	2015 %	Average annual growth 2012 – 2015%
North America/Central America	187.6	19.0	190.4	17.5	0.5
South America	154.3	15.6	172.3	15.8	3.7
China	152.3	15.4	186.0	17.0	6.9
Asia-Pacifi c (incl. Japan)	151.3	15.3	178.3	16.3	5.6
Western Europe	138.7	14.0	142.5	13.1	0.9
Russia/CIS/Eastern Europe	83.0	8.4	88.6	8.1	2.2
Africa/Middle East	67.4	6.8	79.3	7.3	5.6
Central Europe	53.2	5.5	53.6	4.9	0.3
Worldwide	987.8	100.0	1,091.0	100.0	3.4

Beverage consumption by region

Sources: Euromonitor, own estimates

Demand for packaged beverages is also increasing more than proportionately in fast-growing emerging markets and developing countries. For that reason, regional shares of total consumption will continue to shift from Europe and America towards the Asia-Pacifi c region and China in the coming years.

Demand for packaged beverages is rising sharply in China. The Asia-Pacifi c and Africa-Middle East regions are also among the booming markets.

Indonesia

ECONOMIC ENVIRONMENT

WIRTSCHAFTLICHES UMFELD

58

Bottled water is the most popular beverage in Indonesia. There has been little demand for soft drinks, but consumption is increasing more than proportionately from a low level. Demand for ready-to-drink tea is also growing strongly.

5.7% Water

8.0% Soft drinks

7.1% Ready-to-drink tea

Average annual growth rates for 2012 – 2016 Source: Euromonitor

The packaging market by material

PET continued to grow its lead among packaging materials in the reporting period. Preliminary data show that PET containers were used for 41.1% of packaged beverages worldwide in 2012 (previous year: 39.7%). The steadily rising consumption of water, which is oft en packaged in PET bottles, as are carbonated soft drinks, has supported the trend towards PET. The total amount of beverages packaged in PET containers is likely to grow on average by 4.5% annually in the period from 2012 to 2015.

Glass is the second most oft en used material, and its share of packaged beverages worldwide increased slightly to 22.8% in 2012 (previous year: 22.7%). It is the leading packaging material for alcoholic beverages. Demand for glass beverage packaging is likely to rise less than proportionately in the future, as global beer consumption is growing only slightly. The total volume of beverages packaged in glass containers is expected to expand at an average annual rate of 2.5% in the period from 2012 to 2015.

Metal cans occupied third place among packaging materials in the year under review. Their share of total packaged beverages was 11.3%. Cans are used mainly to package beer and CSDs. Demand for these two types of beverage is likely to grow only slightly in the coming years. Euromonitor analysts therefore expect the amount of beverages packaged in cans to increase by only 2.2% on annual average in the period to 2015.

With growth rates averaging 3.6% per year, carton packaging is likely to increase roughly in line with the overall market in the period to 2015. Cartons accounted for 9.5% of total packaged beverage volume worldwide in 2012. Milk and dairy drinks and fruit and vegetable juices are oft en packaged in cartons.

The trend towards beverage packaging made of PET continues

KRONES in fi gures

KRONES improved all key performance indicators in 2012. Consolidated revenue was up 7.4% to €2,664.2 million. Earnings before taxes rose from €74.6 million in the previous year to €97.9 million. KRONES plans to pay out a dividend of €0.75 per share for 2012 (previous year: €0.60 per share).

Germany 8.4%

Central Europe 3.6%

Western Europe 13.5%

Eastern Europe 4.1%

Middle East/ Africa 14.4%

KRONES Group revenue by region in 2012

Russia 4.3%

Asia-Pacifi c 12.8%

China 13.5%

North and Central America 12.3%

Südamerika 13,1% South America 13.1%

• KRONES continues growth trend in 2012
• Operating earnings improved
• Dividend to rise from €0.60 to €0.75 per share

KRONES revenue up 7.4% in 2012

KRONES grew further in 2012 despite the challenging economic environment. Consolidated revenue rose 7.4% year-on-year from €2,480.3 million in 2011 to €2,664.2 million. Strong fourth-quarter sales in 2012 enabled us to beat our target of up to 4% growth. Overall, KRONES benefi ted from its broad range of products and services in 2012. The company's strong position internationally has also proved its value. Revenue growth in the emerging markets more than made up for soft er demand in parts of Europe. International food and beverage companies are con tinually ex panding their capacities in regions like Asia, Latin America, and Africa to meet rising consumer demand there.

The trend toward packaging more beverages and liquid foods in plastic continued in the reporting period. And as the leading supplier of effi cient machines and lines for producing, fi lling, and packaging bottles made of PET plastic, KRONES benefi ted from this trend. Other product areas also contributed to our company's growth. Demand for machines that fi ll beverages into glass bottles increased in the reporting period.

For our customers, it is very important that KRONES has people available locally who can be on site quickly to perform maintenance and service work on their production lines. That is why we have been expanding our service business worldwide for many years now.

KRONES' strong position internationally supported our growth in 2012.

Revenue by segment

KRONES generated 85% of consolidated revenue in its core segment in 2012.

Revenue in our core segment, »machines and lines for product fi lling and decoration«, rose 5.7% year-on-year to €2,258.3 million in 2012 (previous year: €2,137.0 million). With that, segment's share of consolidated revenue was 84.8% (previous year: 86.1%).

KRONES' »machines and lines for beverage production/process technology« segment generated €311.9 million in revenue in the reporting period, 20.1% more than in 2011 (€259.7 million). The segment's share of consolidated revenue increased to 11.7% (previous year: 10.5%).

Revenue in the »machines and lines for the low output range (KOSME)« segment improved 12.6% from €83.6 million in the previous year to €94.0 million. KRONES' smallest segment contributed 3.5% of consolidated revenue (previous year: 3.4%).

Further information can be found in the section »Reports from the segments«, which begins on page 74, and under »Segment reporting« in the notes to the consolidated fi nancial statements on page 126.

Because of the uncertain economic situation, customers in KRONES' home market, Germany, were less inclined to make capital investments. Revenue generated in Germany was down 11.5% from €253.2 million the previous year to €224.1 million in 2012. Thus, sales in Germany accounted for only 8.4% (previous year: 10.2%) of KRONES' consolidated revenue.

Sales in Europe (excluding Germany) were satisfactory overall in 2012 despite the economic crisis that aff ected large portions of the continent in the reporting period. Whereas revenue in Western Europe declined 2.3% year-on-year to €358.2 million, Eastern Europe revenue rose 13.1% to €110.4 million. Our KOSME subsidiaries have a good market position in Central Europe (Austria, Switzerland, Netherlands) and supported our growth there. Revenue in this region increased 16.5% to €95.5 million in 2012. Revenue in Russia and the countries of the former Soviet Union was down 9.9% from a relatively high baseline to €116.0 million. KRONES' total revenue in Europe (excluding Germany) improved from €675.2 million in the previous year to €680.2 million in 2012. This sales region accounted for 25.5% of consolidated revenue in the reporting period (previous year: 27.2%).

KRONES generated around 62% of consolidated sales in the emerging markets in 2012.

		KRONES Group revenue by region
--	--	--------------------------------	--	--

Share of consolidated revenue	31 Dec 2012		31 Dec 2011		Change
	€ million	%	€ million	%	%
Germany	224.1	8.4	253.2	10.2	–11.5
Central Europe (excluding Germany)	95.5	3.6	82.0	3.3	+16.5
Western Europe	358.2	13.5	366.8	14.8	–2.3
Eastern Europe	110.4	4.1	97.6	3.9	+13.1
Russia. Central Asia (CIS)	116.0	4.3	128.7	5.2	–9.9
Middle East/Africa	383.0	14.4	348.5	14.0	+9.9
Asia-Pacifi c	340.3	12.8	334.2	13.5	+1.8
China	359.8	13.5	260.7	10.5	+38.1
North and Central America	327.7	12.3	277.3	11.2	+18.2
South America/Mexico	349.2	13.1	331.3	13.4	+5.4
Total	2,664.2		2,480.3		+7.4

Sales outside Europe contributed the biggest part of KRONES' growth in 2012. We are very well positioned on the emerging markets and are systematically expanding that position. The biggest revenue increase was in China. Our strong local service off erings were one reason why many national and international companies in China chose products and services from KRONES in 2012. At €359.8 million, revenue in China exceeded our strong year-earlier fi gure by 38.1%. Business in China accounted for 13.5% of consolidated revenue, up from 10.5% the previous year. Sales in the rest of the Asia-Pacifi c region were up 1.8% to €340.3 million. The Africa/Middle East

KRONES IN FIGURES

KRONES IN FIGURES

region has become an important market for KRONES over the years. Many new beverage plants are being built there. Our revenue in the region grew 9.9% to €383.0 million in 2012. With a revenue share of 14.4%, this is one of KRONES' most important sales markets.

KRONES continued to grow in Latin America in 2012. Rising demand in important markets such as Brazil contributed to the 5.4% year-on-year increase in revenue in South America to €349.2 million in 2012. KRONES' business in North and Central America in the reporting period developed very well, particularly because demand in the USA picked up. Our total sales in the North and Central America region grew 18.2% to €327.7 million in 2012. All told, the share of KRONES' consolidated revenue generated outside Europe grew to 66.1% in 2012 (previous year: 62.6%).

Revenue by industry

KRONES generated €1,461.1 million in revenue with companies that produce and process non-alcoholic beverages such as water, soft drinks, and juices in the reporting period. That represents a 0.9% improvement in revenue generated with this customer group over 2011 and brings the share of consolidated revenue to 54.8% (previous year: 58.4%), once again the largest share of consolidated revenue.

The revenue KRONES generated with producers of alcoholic beverages in 2012 was up 26.0% year-on-year to €1,048.9 million. This large improvement refl ects growing demand from breweries for process technology products as well as fi lling and packaging technology. KRONES generated 39.4% of consolidated revenue through sales to customers in the »alcoholic beverages« sector in 2012 (previous year: 33.5%).

Revenue from milk, dairy drink and foodstuff producers and chemical, pharmaceutical, and cosmetic manufacturers was down 23.1% year-on-year to €154.2 million in 2012. This customer group's share of consolidated revenue decreased to 5.8% (previous year: 8.1%).

More information is available at www.krones.com/en/your-industry. php

Demand for KRONES products and services is growing

New orders at KRONES improved 8.2% year-on-year from €2,514.0 million to €2,721.1 million in 2012. First-half orders were up only slightly over the year-earlier period. Growth then accelerated dramatically. In the period from October to December 2012, orders intake came to €753.8 million, more than one-fi ft h higher than in the last quarter of 2011. That refl ects the fact that demand was picking up in a growing number of regions.

The emerging markets contributed a signifi cant portion of the increased orders intake. New orders from China, Asia, Africa, and Latin America were up year-on-year – in some places quite considerably.

KRONES has an orders backlog of around €1 billion

The higher orders intake has also caused KRONES' orders backlog to grow. At 31 December 2012, the company had orders on hand totalling €999.3 million (previous year: €942.4 million). That gives us a solid basis for balancing our capacity utilisation in the months ahead.

New orders at KRONES rose 8.2%.

KRONES IN FIGURES

KRONES improves earnings performance

The out-of-court settlement of our legal disputes in the US (Le-Nature's) had a signifi cant impact on KRONES' earnings in 2012. Against the background of possible risks arising from the proceedings in the US, which might otherwise have dragged on for years, KRONES decided to bring an end to the matter by concluding settlements with the major plaintiff s, and reaching an agreement with the district attorney as well, at the same time. This resulted in a €37.8 million charge against earnings before taxes (EBT) for 2012. The charge against earnings in the previous year was €36.7 million. The settlement payments were made in full in the fi nancial year 2012.

At €97.9 million, EBT was up 31.2% in 2012 from the year-earlier fi gure of €74.6 million. The EBT margin – the ratio of earnings before taxes to sales – improved from 3.0% in the previous year to 3.7%. Adjusted to exclude the one-time expense, KRONES' EBT margin was 5.1% in 2012 (previous year: 4.5%). Thus, we achieved our target of an operating EBT margin of more than 5% in the reporting period.

KRONES' net income was up 53.3%, from €43.7 million in the previous year to €67.0 million in 2012. The increase in net income was far bigger than the increase in EBT because the company's tax rate decreased from 41.5% in the previous year to 31.5% in the reporting period. In 2011, KRONES had to pay back taxes for previous years following a tax audit.

KRONES IN FIGURES

CONSOLIDATED MANAGEMENT REPORT | KRONES IN FIGURES

KRONES IN FIGURES

Treasury shares (of which there are around 1.43 million) are not included in the calculation of earnings per share. Thus, earnings per share for the fi nancial year 2012 amount to €2.22 (previous year: €1.45).

Adjusted to exclude the one-time expense, earnings per share came to €3.07 (previous year: €2.33).

Given the positive operating trend, the Executive Board and the Supervisory Board of the company will propose to the annual shareholders' meeting that the dividend for the fi nancial year be increased to €0.75 per share (previous year: €0.60 per share).

2012	2011	Change
2,664.2	2,480.3	+7.4%
–16.9	+2.8
2,647.3	2,483.1	+6.6%
–1,325.3	–1,271.8	+4.2%
–777.4	–738.4	+5.3%
–375.6	–332.0	+13.1%
169.0	140.9	+19.9%
–76.7	–70.3	+9.1%
92.3	70.6	+30.7%
5.6	4.0	+40.0%
97.9	74.6	+31.2%
–30.9	–30.9	±0
67.0	43.7	+53.3%

KRONES Group earnings structure

KRONES improved earnings considerably in 2012.

KRONES expanded its business considerably in 2012. Revenue rose 7.4% over 2011, to €2,664.2 million. The company's total operating performance increased 6.6% from €2,483.1 million in the previous year to €2,647.3 million in 2012.

Expenses for goods and services purchased increased less than proportionately to total operating performance. At €1,325.3 million, KRONES' biggest expense item was up only 4.2% in 2012 over the previous year (€1,271.8 million) . Because we are increasingly using identical assemblies and modules in our machines, we were able to reduce the ratio of expenses for goods and services purchased to total operating performance from 51.2% in the previous year to 50.1% in 2012. Modular construction is

part of KRONES' Value programme. Our product mix also had a positive impact on the goods and services purchased fi gure.

Personnel expenses were up only 5.3% from €738.4 million in the previous year to €777.4 million. Thus, this expense item also rose less than total operating performance. This fact is refl ected in the ratio of personnel expenses to total operating performance. At 29.4%, the ratio is even lower than the already-low 29.7% achieved in the previous year despite the fact that there were 493 more KRONES employees working in the group than in the previous year. The very high operating performance in the fourth quarter of 2012 was largely to thank for the improvement. The fact that many of the new employees KRONES hired in 2011 and 2012 had become increasingly productive following their initial on-the-job training period is certainly refl ected in this improved fi gure.

Depreciation and amortisation of non-current assets increased 9.1% in the reporting period from €70.3 million in the previous year to €76.7 million. The increase was due in part to an unscheduled write-down of €2.8 million in our material fl ow technology division, which was necessary in connection with the measures taken within the division. The ratio of depreciation and amortisation to revenue rose only slightly to 2.9% (previous year: 2.8%).

The net of other operating income and expenses and own work capitalised worsened from –€332.0 million in the previous year to –€375.6 million in 2012. This fi gure includes the €37.8 million charge against earnings resulting from the one-time expense for Le-Nature's. In the previous year, KRONES hat recognised a provision of €36.7 million for the legal disputes, which had reduced 2011 EBIT accordingly. In all, earnings before interest and taxes (EBIT) improved by €21.7 million year-on-year in 2012 to €92.3 million.

Financial income or expense traditionally has little impact on KRONES' earnings since the company has a solid fi nancial base. In 2012, fi nancial income contributed €5.6 million (previous year: €4.0 million) to earnings before taxes (EBT), which came to €97.9 million (previous year: €74.6 million). KRONES paid €30.9 million in income taxes in 2012, which corresponds to a tax rate of 31.5%. With that, the company's absolute tax burden for 2012 was largely unchanged from 2011 despite the considerably higher EBT.

Personnel expenses and the expense for goods and services purchased grew less than total operating performance.

69

€ million	2012	2011	Change
Earnings before taxes	97.9	74.6	+23.3
Cash flow from operating activities	136.6	94.1	+42.5
Cash flow from investing activities	–106.0	–101.5	–4.5
Free cash fl ow	30.6	–7.4	+38.0
Cash flow from fi nancing activities	–20.0	–14.1	–5.9
Net change in cash and cash equivalents	10.6	–21.5	+32.1
Other changes in cash and cash equivalents	–3.2	–0.4	–2.8
Cash and cash equivalents at the beginning of the period	125.5	147.4	–21.9
Cash and cash equivalents at the end of the period	132.9	125.5	+7.4

For more information, please refer to the complete statement of cash fl ows on page 124.

KRONES improved cash fl ow from operating activities by €42.5 million over 2011 to €136.6 million in the reporting period. Higher earnings before taxes as well as a sharp decrease in working capital contributed to the increase, which more than off set the negative eff ect from the adjustment for using the provision for the Le-Nature's settlement payments. The ratio of working capital to sales decreased from 22.8% in the previous year to 19.4% in 2012. The annual average of this ratio is more telling than the fi gure at the end of the period alone. The average of the ratios of working capital to sales for the four quarters of 2012 was 25.0% (previous year: 26.0%).

KRONES generated free cash fl ow in 2012 despite the €30.6 million settlement payment.

KRONES increased its investments in property, plant and equipment and intangible assets to €110.9 million in the reporting period (previous year: €106.0 million). These expenditures went toward, among other things, the expansion of the international LCS Centres, new production machinery, and the expansion of our logistics and IT infrastructure. The sharp increase in cash fl ow from operating activities resulted in a positive free cash fl ow of €30.6 million aft er capital expenditure in 2012 (previous year: negative €7.4 million).

The dividend payout of €18.1 million (previous year: €12.1 million) and the payment of lease liabilities totalling €1.9 million (previous year: €2.1 million) in 2012 resulted in an increase in cash fl ow from fi nancing activities.

Changes arising from exchange rates and the consolidated group had an impact of –€3.2 million on cash and cash equivalents in 2012 (previous year: –€0.4 million). All told, KRONES' cash and cash equivalents increased in the reporting period from €125.5 million in the previous year to €132.9 million.

2012	2011	2010	2009	2008
625	597	569	542	534
587	555	519	496	482
1,445	1,443	1,317	1,248	1,291
133	125	147	136	108
836	785	759	696	790
1,234	1,255	1,127	1,094	1,035
155	134	125	125	144
1,079	1,121	1,002	969	891
2,070	2,040	1,886	1,790	1,825

For more information, please refer to the complete statement of fi nancial position on pages 122 and 123.

At 31 December 2012, KRONES' total assets were up 1.5% from the previous year to €2,069.6 million. This increase is far smaller than the increase in total operating performance (+6.6%). At the end of the reporting period, the carrying amount of fi xed assets came to €586.5 million, which is up 5.8% from the year-earlier period (€554.6 million). This increase was due to an increase in property, plant and equipment, whose carrying amount grew from €441.3 million in the previous year to €464.9 million at the end of 2012. The higher PP&E fi gure refl ects the investments made in manufacturing and logistics in 2012. Intangible assets, which consist primarily of development costs that must be capitalised, were up to €119.1 million at 31 December 2012 (31 December 2011: €110.7 million). In all, KRONES had non-current assets totalling €625.1 million at the end of 2012, which is 4.7% higher than the previous year (€597.2 million).

Current assets amounted to €1,444.5 million at the reporting date for 2012. Thus, despite the larger business volume, this fi gure was largely unchanged from the previous year (31 December 2011: €1,442.6 million). Inventories were up only slightly (0.9%) from €642.8 million to €648.4 million. Trade receivables were down 1.4% year-on-year to €559.9 million at the end of 2012. Other assets, which consisted largely of advances paid and tax receivables, decreased year-on-year from €102.0 million to €90.6 million in 2012. At 31 December 2012, cash and cash equivalents were up from €125.5 million in the previous year to €132.9 million, although the company paid the settlement for the legal proceedings in the US in the fourth quarter of 2012.

The positive net income fi gure for 2012 brought equity up to €836.2 million (31 December 2011: €785.5 million). As a result, KRONES' equity ratio improved year-on-year from 38.5% to 40.4%. Non-current liabilities totalled €155.1 million at the end of 2012 (31 December 2011: €133.6 million). Provisions for pensions were up by €5.3 million year-on-year to €87.6 million and deferred tax liabilities were up from €3.9 million to €21.1 million. The company had no non-current bank debt at the end of the 2012 reporting period.

At 31 December 2012, KRONES' current liabilities were down from €1,120.7 million in the previous year to €1,078.4 million. Whereas advances received increased to €497.2 million (31 December 2011: €443.5 million), other provisions decreased to €128.7 million (31 December 2011: €176.1 million). Other provisions primarily consist of provisions for warranties. Current trade payables were down from €201.3 million at the end of 2011 to €197.8 million. KRONES had no current bank debt at the end of 2012. Thus, KRONES had net cash and cash equivalents (that is, cash and cash equivalents less bank debt) totalling €132.9 million at 31 December 2012 (31 December 2011: €125.5 million).

KRONES improved ROCE

The return on capital employed (ROCE), that is the ratio of EBIT to average net tied-up capital, improved to 9.9% (previous year: 7.9%) due to the considerable increase in earnings. Adjusted to exclude the eff ect of Le-Nature's on earnings, ROCE was 13.6% (previous year: 11.9%). Our medium-term target – and a fundamental part of the Value programme – is to achieve an ROCE of 20%.

KRONES had net cash and cash equivalents of €132.9 million at the end of 2012. The company's equity ratio was 40.4%.

Product fi lling and decoration

Segment revenue

Sales in our core segment, »machines and lines for product fi lling and decoration«, increased 5.7% to €2,258.3 million in 2012 (previous year: €2,137.0 million). Continuing high demand for our machines and lines outside Europe supported this growth. Revenue from outside Europe was up 11.7% year-on-year while segment revenue in Europe (including Germany) was down slightly. The segment contributed 84.8% of consolidated revenue in 2012 (previous year: 86.1%).

Our biggest segment made strong gains outside Europe and increased its profi t margin slightly.

* Percentage change on previous year

Segment earnings

As in the previous year, the €37.8 million provision for the legal disputes in the US (previous year: €36.7 million) had a negative impact on earnings performance in our core segment, »machines and lines for product fi lling and decoration«. In all, segment earnings before taxes (EBT) improved 9.4% in 2012 from €108.9 million in the previous year to €119.2 million. With that, the EBT margin, the ratio of earnings before taxes to segment revenue, advanced from 5.1% to 5.3%. Adjusted to exclude the one-time expense relating to Le-Nature's, the EBT margin was 7.0% for the reporting period (previous year: 6.8%).

KRONES IN FIGURES

REPORT FROM THE SEGMENTS

Segment revenue

In our »machines and lines for beverage production/process technology« segment, sales were up 20.1% in 2012, to €311.9 million (previous year: €259.7 million). Demand from abroad was high and more than made up for the decline in Germany. The segment's contribution to consolidated revenue at KRONES grew to 11.7% in 2012 (previous year: 10.5%).

The beverage production/process technology segment developed according to plan in the reporting period. Segment revenue increased more than proportionately and the segment's loss was reduced considerably.

* Percentage change on previous year

Segment earnings

The earnings situation in the »machines and lines for beverage production/process technology« segment developed according to plan in 2012. We achieved our target of signifi cantly reducing the loss posted in 2011. Earnings before taxes (EBT) improved from –€19.3 million in the previous year to –€13.6 million in the reporting period. This fi gure includes an unscheduled write-down of €2.8 million in our material fl ow technology division as a result of the measures taken in the division. In addition to the actions taken in intralogistics, which are now complete, we will further optimise structures in our process technology segment in order to break even in 2013. We will continue to expand our components business and strengthen our process technology portfolio. Process engineering is strategically important to KRONES as a full-service supplier and we therefore intend to further expand this segment. The segment's EBT margin was –4.4% in 2012 (previous year: –7.4%).

Segment revenue

Sales in KRONES' smallest segment, »machines and lines for the low output range (KOSME)«, improved 12.6% year-on-year to €94.0 million in 2012 (previous year: €83.6 million). KOSME gained ground in all sales regions and benefi ted from the fact that we changed the sales structure and revised the product portfolio. In 2012, KOSME contributed 3.5% to consolidated revenue (previous year: 3.4%).

We made good progress in our smallest segment and reached our targets for 2012. KRONES is confi dent that KOSME will come out of the red in 2013.

Segment earnings

Earnings before taxes (EBT) in the »machines and lines for the low output range (KOSME)« segment improved year-on-year from –€15.0 million to –€7.6 million. Overall, we achieved our 2012 goal for KOSME, halving the segment's losses over 2011, and are confi dent that the segment will be out of the red in 2013. Balancing our capacity utilisation and repositioning the segment on the personal hygiene and cleaning products market are key factors here. Moreover, we will continue to optimise costs and further develop our LCS business.

KRONES IN FIGURES

REPORT FROM THE SEGMENTS

79

• KRONES' whole-plant expertise starts with innovative individual machines
• Number of patents and utility models up sharply
• Customers benefi t from new products

KRONES is committed to being a one-stop provider of effi cient, state-of-the-art production systems and services. It is this commitment that drives us to continually expand our range of products and improve our established machines and systems. KRONES' R&D team consists of more than 1,800 highly qualifi ed employees working on new and evolving development projects and optimising existing products in order to further increase the benefi t to our customers.

The inventiveness of KRONES' people and our targeted innovation processes, such as the »Invention Brainpool« and special innovation workshops, bore fruit once again in 2012. The number of patents and utility models held by KRONES grew a solid 25% over the previous year, to more than 2,750. We are especially pleased that the number of registered patents and patent applications increased in all of the company's core technology areas. Figures can be found in the notes to the consolidated fi nancial statements.

Dependable individual machines are the bedrock of our success

In the past, fi lling and packaging lines consisted of individual stand-alone machines connected by various conveyors. These lines have now evolved into complete systems comprising process engineering, fi lling and packaging, and material fl ow technology, all of which are networked by way of intelligent information technology. KRONES has mastered all of the technologies required to plan, build, and operate state-of-the-art production lines. Our unique systems expertise gives us a major competitive advantage. But reliable, innovative individual machines are still the bedrock of KRONES' success as the market leader and leader in innovation. They are the very foundation on which we build our customers' effi cient production systems.

That is why our R&D activities begin with the individual machines. A major aim of our innovation work is to deliver machines that require minimal maintenance, are easy to operate, and provide maximum uptime. The individual machines must also be easily combined into integrated units, to keep the complexity of the production lines as low as possible and increase line effi ciency.

One example of such a unit is the ErgoBloc L, a bloc solution for the wet end of the line that can fi ll up to 81,000 containers per hour. KRONES has integrated our Contiform 3 small cavity technology – stretch blow-moulding for small containers – with a Contiroll labelling system that includes a Multireel magazine for automatic splicing and fi llers from the new Modulfi ll series into a single, harmonious concept. Prior to bringing them together, we optimised each of the individual machines for

KRONES develops machines and lines that are innovative, dependable, and resource-friendly.

KRONES IN FIGURES

RESEARCH AND DEVELOPMENT

use in a bloc with targeted innovations and then linked them together with intelligent control systems. These sophisticated measures have made the ErgoBloc L far more cost-eff ective than previous line concepts. Total operating costs are far lower than those of conventional fi lling lines. The bloc also has a 25% smaller footprint.

Our customers benefi t from bundled expertise

At KRONES, all technologies and the associated expertise are bundled centrally. The close proximity of our departments enables our engineers to quickly and consistently defi ne standards that apply across the disciplines and develop uniform interfaces – whether mechanical, electronic, or process engineering in nature. Intensive communication among the various departments throughout the entire development process is especially critical for highly integrated technologies and machines destined for use in bloc and system solutions. It avoids potential sources of error and establishes a sound basis that ensures the smooth operation of our customers' lines.

Selected innovations

LavaClassic

Customers have high expectations of state-of-the-art bottle washers. The technology has to be rugged and it has to achieve optimum cleaning results, even under diffi cult conditions. With the LavaClassic, KRONES has added a low-cost option to its range of bottle washers. The machine's modular design off ers versatility at an aff ordable price. Despite the low price, there is no compromising on quality. In developing the LavaClassic, KRONES drew heavily on experience from our fi eld-proven Lavatec series and incorporated many of its functions. The LavaClassic uses dependable technology and is easy to access, maintain, and operate. In sum, it ensures maximum uptime and the utmost in production security.

CombiCube F

The compact CombiCube B brewhouse was KRONES' fi rst step towards providing innovative systems tailored to the specifi c needs of craft breweries. In 2012, KRONES added another brewery process area to the modular CombiCube concept – the CombiCube F for the fi lter cellar. The system's fi ltration throughput ranges from 25 to 108 hectolitres per hour, and is therefore dimensioned to optimally match the capacity of the CombiCube B brewhouse. With the CombiCube F, craft breweries with an annual production output of up to 250,000 hectolitres are now able to benefi t – on a more compact scale – from KRONES' fi eld-proven technology in yet another section of their production operations. The fi lter is tailored to the needs of small and mid-sized breweries and is divided up into fi ve individual modules that can be combined at will to suit a brewery's particular needs.

State-of-the-art bottle washers are energy effi cient. KRONES' LavaClassic off ers quality at an aff ordable price.

The modular Combi Cube F is a fi lter cellar solution that is perfectly tailored to the needs of craft breweries.

KRONES IN FIGURES

RESEARCH AND DEVELOPMENT

Contiform 3 series

Just one year aft er the successful market launch of KRONES' latest generation stretch blow-moulder, Contiform 3, we have nearly completed the product portfolio. In addition to the machine types for standard applications, KRONES is now off ering the fi rst versions for producing hot fi ll bottles (heat set), sterilising preforms (Contipure), and producing up to 81,000 containers per hour (Small Cavity).

Small Cavity (SC): The high-speed stretch blow-moulder for containers up to 0.75 litres is equipped with a newly developed mould carrier that requires no lubrication. This innovation yields a 70% reduction in the time needed for manual lubrication compared with the predecessor model – and that means more machine uptime.

KRONES has already delivered several C336 SC machines, with which the company has not only set yet another world record in terms of stretch blow-moulder output but also off ers the lowest operating costs. The C324 SC, C328 SC, and C332 SC models will round out the small cavity series in 2013.

Heatset: In addition to all of the innovations contained in the Contiform 3, the new version for producing containers for hot fi lling (heat set) also includes integrated tempering units. That saves space and increases the stability of the production process. The machine is also equipped with a lubricant-free mould carrier. A new confi guration of the pressure pads yields improved bottle quality. The Contiform 3 Heatset is the fi rst heat set machine on the market to use an electromagnetically controlled stretch system. This opens up new possibilities for increasing both quality and speed. The new machine solution, which covers the entire performance range from 18,000 to 58,500 containers per hour, has been available since early 2013.

Contipure: KRONES further evolved the Contipure preform sterilisation module, which was already available for the Contiform 2 generation, and has already delivered the fi rst Contiform 3 machines with Contipure. We integrated the process unit for hydrogen peroxide treatment into the module and further improved the hygienic design. Contiform 3 with Contipure is a very economical solution for fi lling products with high acid content such as iced teas and fruit juices. Contipure modules are also now available in two additional sizes in order to provide the most cost-eff ective solution for all output ranges.

The Contiform (SC) can produce up to 81,000 containers per hour with a volume of up to 0.75 litres.

The Contiform Heatset is specifi cally designed for producing hot-fi llable containers.

Contipure is top technology for preform sterilisation.

KRONES IN FIGURES

RESEARCH AND DEVELOPMENT

New generation bottle inspectors

KRONES' latest generation of empty and full bottle inspectors is based on a modular concept. The linear machines are inexpensive and deliver optimum product security for bottlers who are concerned about quality. The market launch of the Linatronic EBI (empty bottle inspector) for empty bottles made of PET and glass was very successful. Precise inspection results keep the number of false rejects to a minimum. The machine's technical highlights include complete hygienic design, durable LED lighting, fast changeover thanks to automatic adjustment of conveyor belts and camera units, and the space-saving Ecopush rejection system, which does not consume any compressed air. This machine features signifi cantly reduced energy consumption and maintenance requirements. The Linatronic EBI is also setting new standards in terms of functionality and ergonomics. Its modular design gives our customers optimum fl exibility since any new functions needed can simply be added to the base machine. Development of the Linatronic FBI (full bottle inspector) will be completed in 2013 and will use the same modular design.

KRONES' Linatronic EBI inspects empty bottles made of glass and PET plastic for damage and contamination.

KRONES IN FIGURES

Lifecycle Service (LCS)

• Strategic focus on being close to customers
• Expansion of decentralised expertise
• Investments in logistics

»To see the world through our customers' eyes.« That aim is at the heart of KRONES' Lifecycle Service (LCS) division. And in our customers' eyes, the LCS cycle of a KRONES line consists of the following stages.

Producing

Our customers expect KRONES machines and lines to produce for a long time, without compromising on quality. To ensure that we meet that expectation, we provide our customers with original spare parts and a wide range of services. KRONES is available for its customers around the clock. Our 24/7 support is added value for our customers because it minimises downtimes.

Maintaining

A production line is a capital good that is depreciated over the course of its life. For this reason, it is necessary from a business perspective to maintain the investment's value. KRONES provides services that accomplish that. Whether it's innovative maintenance strategies or line tuning, with KRONES LCS products, our lines remain productive and maintain their value over their entire useful lives.

Optimising

Every KRONES machine contains the latest technology when it leaves our factories. But our customers' needs can change at any time aft er a machine is delivered. They may need to handle new products or packaging, meet stricter environmental protection rules, or change the layout of their production hall to accommodate new investments. KRONES always has a fi tting solution and the expertise and know-how to complete such complex projects with retrofi ts and upgrades. Another challenge arises from the rapid pace of technological change – particularly in electronics. That is why KRONES' developers are committed to ensuring that new technologies can always be retrofi tted to existing machines. These upgrades oft en give customers considerable added value, for instance, in the form of more cost-eff ective operation or increased quality of the end product.

More information is available at www.krones.com/en/lcs.htm

KRONES provides its customers around the globe with comprehensive after-sales service and products of the highest quality.

KRONES IN FIGURES

Getting close to customers – a model for success

KRONES' LCS team of over 2,000 highly qualifi ed people is putting our broad range of services into action worldwide to satisfy our customers' needs. We maintain ongoing dialogue with our customers, which helps us to identify market trends and future needs and to develop suitable products or optimise existing ones.

In our Value strategy programme, we have defi ned measures with which KRONES is preparing for future challenges. The increased internationalisation of our services business is of particular importance for the LCS division. A typical KRONES customer is a global company and invests primarily in the world's growth markets. Whether in China, Africa, India, or South America – being close to our customers has always been a key factor in KRONES' success.

Quick response times, communication in our customer's language, and ongoing support from a regular team of technicians in the region gives customers real added value. For this reason, our decentralised strategy includes a major expansion of our local expertise and even more hiring of local service employees. Already more than 50% of KRONES' service technicians are based at our LCS Centres and offi ces worldwide and not at our corporate headquarters in Neutraubling. Our push toward internationalisation will further increase this percentage in the years ahead. KRONES attaches the utmost importance to always keeping our service technicians' knowledge and skill at the highest possible level. For this reason, we invest heavily in training and continuing education for our service personnel worldwide.

Being close to customers is a key success factor in the service business.

KRONES IN FIGURES

Another part of our decentralised strategy is to produce more and more of our spare parts and change parts in our LCS Centres and to off er them directly to customers from the LCS Centres and representative offi ces. This eliminates long lead times. It also allows us to clarify questions with customers directly, without the detour or delay of going through our head offi ces, and permits us to respond to customer wishes quickly and tailor proposals to their individual needs.

The benefi ts of KRONES' local service expertise are not confi ned to acute cases. Our close proximity also means that a specialist is always available to provide knowledgeable support on all aspects of »producing, maintaining, and optimising«. That strengthens the relationship and lays the foundation for long-term service revenue.

Investing in logistics

KRONES is investing heavily in logistics in order to ensure optimum availability of parts for our customers. These investments are being made in our LCS Centres worldwide and at our corporate headquarters in Neutraubling. In some regions, we are already able to fi ll as many as 8 out of 10 customer orders from our LCS Centres' decentralised warehouses. To raise this fi gure even further, KRONES is investing in intelligent systems that determine which spare parts are frequently needed. Here, we are not only using scheduling strategies based on historic parts consumption data. We also use statistically calculated failure rates to identify which parts absolutely must be kept on hand. Using this method, we are able to stock our LCS Centres with parts before customers report a need for them.

We off er the same expertise to our customers, to optimise their own warehousing. With »SPAC«, our spare parts availability concept, customers can increase their stock of important parts to ensure their availability in the event of an emergency and thus avoid long line downtimes. »SPAC« also makes it possible to reduce overall inventories and the amount of capital tied up in them.

New LCS logistics centre in Neutraubling

We are also investing heavily in the logistics processes at our Neutraubling site. The new LCS logistics centre that will go into operation in 2013 will speed up order handling considerably. The new centre features 38,000 bays for storing spare parts, brings all logistics processes relating to spare parts into a single location, reduces the number of internal interfaces, and meets the requirements for the air cargo security programme – so that KRONES can supply customers with spare parts even better in the future.

Spare parts need to be delivered to customers' plants quickly to prevent long downtimes.

KRONES IN FIGURES

KRONES Academy

The KRONES Academy is an important part of KRONES Lifecycle Service, off ering a broad range of practical training courses. More than 50 qualifi ed trainers instruct operating personnel on the fundamentals of our machines and lines, conduct special courses for individual tasks, and train management personnel. The courses are held at our headquarters in Neutraubling and at our international training centres, which are located within KRONES' Service Centres. All of our course off erings are aimed at ensuring that our customers have a perfect mastery of their KRONES machines and lines and can operate them safely and effi ciently. In 2012, a total of 14,691 people (previous year: 14,126) attended KRONES Academy events.

KRONES Expert Dialogue event a success

Some 40 employees from 30 diff erent customer companies attended our second KRONES Expert Dialogue event in Neutraubling in September 2012, which was hosted by LCS and KRONES Academy. Participants discussed current trends and challenges in the industry from a practical perspective. For example, brewery experts reported on how they are using new IT systems to address the growing challenges of energy management and on how they are using meticulous analyses of energy and media fl ows to tap potential savings. During a tour of the plant, KRONES showed specifi c examples that demonstrated the results achievable with Total Productive Management (TPM). The KRONES Expert Dialogue event is an excellent platform for fostering dialogue with our customers and strengthening customer loyalty.

KRONES IN FIGURES

KRONES continues to grow its workforce

KRONES' workforce grew further in the reporting period. At the end of September 2012, the company employed 11,963 people, up from 11,389 in the previous year. By growing our team, KRONES is making an ongoing Value investment – to secure the company's future and lay the groundwork for future growth. Internationalising our staff is one of our strategic goals as we work to strengthen KRONES' local aft er-sales service for customers. That is why we did most of our new hiring outside Germany last year, bringing the share of employees outside Germany up from 22.0% in the previous year to 24.1% at the end of the reporting period.

KRONES is investing heavily in expanding our international workforce.

Demographic change has meant that ensuring a lasting supply of qualifi ed young recruits and further improving our existing employees' – even our older employees' – qualifi cations is one of our most important human resources tasks. We aim to further build and enhance KRONES' international employer branding in the years ahead.

A breakdown of our employees' qualifi cations shows that our workforce is highly skilled. University graduates make up 17.4% of our workforce. Almost one-quarter of our workforce are commercial specialists, technicians, and master craft smen. Nearly 60% of our employees in Germany have completed a recognised vocational training programme.

KRONES invests in good recruits

KRONES off ers a strong in-house training programme to draw qualifi ed young recruits. The company provides appealing options for motivated young people who begin their careers with KRONES through vocational training, internships, or graduate theses.

Commercial specialists, technicians, master craftsmen Qualified professional training University degree

KRONES off ers attractive, challenging training opportunities to a large number of young people in 20 diff erent fi elds every year. We invest around €70,000 in each of our young trainees. Aft er a long and rigorous selection process, 150 young people began their training with KRONES in the fall of 2012.

KRONES off ers young people an attractive array of vocational training options.

In all, KRONES was training 517 young people in Germany at the end of 2012. That puts our training rate at a very respectable 5.8%. In addition to the content prescribed by the respective training programmes, KRONES aims to give its trainees additional qualifi cations such as presentation techniques, and international experience through stays in our subsidiaries and offi ces abroad.

KRONES IN FIGURES

EMPLOYEES

New training centre opens

In July 2012, we opened the newly constructed training centre at our headquarters in Neutraubling, Germany. With the new building and other spaces in adjacent buildings, we now have more than twice as much space available for training. KRONES invested nearly €4 million in the new »training campus« . The investment underscores KRONES' ongoing commitment to growing our own, highly qualifi ed talent.

KRONES invested nearly €4 million in the new »training campus« in Neutraubling, more than doubling the space available for training purposes.

Close collaboration with colleges, universities, and students

KRONES has for years been working closely with universities to ensure early contact with university graduates. The company organises a range of events at which budding engineers and scholars can learn about the careers and opportunities KRONES off ers. Because KRONES has an excellent reputation among university students, these events are very well attended.

We have a long-standing partnership with the University of Applied Sciences in Regensburg and the University of Regensburg in the sciences. Through this programme, KRONES gives many young scientists a chance to combine theory and practice in practical semesters and thesis-writing opportunities.

In 2012, we advised 263 students writing theses and 717 interns on a variety of projects with practical relevance. And KRONES gained a number of highly qualifi ed recruits from this pool once again in 2012.

KRONES IN FIGURES

EMPLOYEES

Sustainability at KRONES

Social responsibility is an important part of doing business and making commercial and technological progress. KRONES took this insight on board very early and has always viewed its social responsibilities to its staff , its business associates, society as a whole, and the planet's natural environment as the very basis of its corporate culture.

The fundamental principles that guide our employees in thinking and acting sustainably are fi rmly anchored in our rules of conduct, our codes, and our mission statement.

KRONES joins UN Global Compact

KRONES AG signed on to the United Nations (UN) Global Compact in May 2012 to communicate to the public our corporate commitment to issues of business ethics. The overarching goal of the UN Global Compact is to establish international, universal principles and values for policymakers, business, and society. The Compact lays down guidelines with worldwide validity for the fi elds of human rights, labour standards, environmental protection, and combatting corruption and holds its member companies to these guidelines. More than 6,000 companies worldwide have signed on, including many of KRONES' customers.

Dialogue with all stakeholders

As the circumstances under which companies do business change more and more rapidly, we have to identify new challenges quickly. KRONES systematically analyses and assesses opportunities and risks relating to CSR (Corporate Social Responsibility) topics on the basis of ongoing dialogue with our stakeholders (customers, suppliers, shareholders, employees, policymakers, trade associations, academia, and others) and the additional opportunities for dialogue aff orded by our membership in the Global Compact. And with that, we are minimising risks for the company and strengthening our partners' trust in us.

CSR strategy

Our CSR strategy is embedded in the overarching corporate strategy programme Value. Along with our CSR targets, we also want to create »added value« for our company, our employees, our customers, our suppliers, our investors, and society as a whole.

Further interesting information on the topic of sustainability and our CSR strategy can be found in our Sustainability Report, which is available online at www.krones. com.

By joining the UN Global Compact, KRONES is further demonstrating its commitment to doing business sustainably.

KRONES IN FIGURES

SUSTAINABILITY AT KRONES

• Risks identifi ed on an ongoing basis
• Effi cient control and management tools

Risk management system is being implemented and is always evolving

KRONES is exposed to a variety of risks that are inextricably linked with doing business globally. We continuously monitor all signifi cant business processes to identify risks early and to actively manage and limit them. An internal control system with which we record, analyse, and assess all relevant risks is an integral part of KRONES' risk management system. We monitor all material risks and any countermeasures already taken in a detailed, ongoing process that entails planning, information, and control. We are continually 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 control.

Risk analysis

In order to identify risks early, we continuously monitor all business activities. We conduct a profi tability analysis on all of our quotes before accepting any order. For orders that exceed a specifi ed volume, we also conduct a multi-dimensional risk analysis. Apart from profi tability, we also individually record and evaluate fi nancing risks, technological risks, and scheduling and other contractual risks before accepting an order. Thus, risk management at KRONES begins before risks arise.

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. In addition, we conduct a comprehensive risk inventory every year for KRONES AG and all signifi cant group companies. This risk inventory leads to corresponding measures and actions to reduce risk. The basic principles and process are documented in our risk policy. The risk management system serves not only the purpose mandated by law, of detecting early those risks that could jeopardize the company's survival, but also covers all risks that can have a signifi cant negative impact on earnings.

KRONES takes a proactive approach to managing risks. We use an internal system to continuously monitor and control all signifi cant business processes.

KRONES IN FIGURES

RISKS/OPPORTUNITIES

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 control

We use the following tools to plan our business activities and control risk within our internal 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 offi cers who are responsible for risk management. This includes identifying and reporting risks as well as introducing and implementing measures to actively control risks.

Risk controlling

We continually assess, discuss, and document operational and fi nancial risks. The eff ectiveness of countermeasures that have been implemented is also monitored in controlling processes throughout the year. Apart from new orders, orders on hand, and sales, we also look at all types of expenditures in cash fl ow and material components of our current assets and the statement of fi nancial position. We use the fi gures to assess risks related to ongoing operations and options with respect to future projects.

Key features of the internal control system and the risk management system as relates to accounting and fi nancial reporting

KRONES has an internal control and risk management system for accounting and fi nancial reporting processes to ensure that all business transactions are always correctly recorded, processed, accounted for, and recognised in the fi nancial statements. KRONES' internal control and risk management system comprises all principles, methods, and measures to ensure that the company's accounting and fi nancial reporting are eff ective, effi cient, and proper and in compliance with all relevant regulations and standards.

The key features of KRONES' internal control and risk management system relating to (group) accounting and fi nancial reporting can be described as follows:

• The KRONES Group has a clear management and corporate structure. Key duties that reach across various units are centrally managed.
• The duties of the units that are materially involved in accounting and fi nancial reporting processes are explicitly segregated and responsibilities are clearly assigned.
• Regular reviews and audits are conducted within the various units, primarily by Controlling.
• Standard soft ware is used for accounting and fi nancial reporting as far as possible.
• Special security precautions protect the soft ware and IT systems used for accounting and fi nancial reporting against unauthorised access.
• Suffi cient binding policies (e.g. for payments and travel expenses) are in place and updated on an ongoing basis.
• All of the departments involved in the accounting and fi nancial reporting process have suitably qualifi ed staff .
• Regular spot checks are used to continuously verify the completeness and accuracy of our accounting data. The soft ware used also performs programmed plausibility checks.
• We use dual verifi cation for all accounting-related processes.

RISKS/OPPORTUNITIES

Financial risks

Information relating to IFRS 7 Financial Instruments: Disclosures.

Because of regional and customer-related diversifi cation, 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 fi nancial 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 customer's failure to fulfi l 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-specifi c 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 receivables that may be at risk of default.

Due to the complexity of our machines and lines, there are sometimes lags in payment receipts. The very low volume of actual defaults, as measured against the total volume of receivables, attests to the eff ectiveness of the measures taken.

The theoretical maximum credit risk from trade receivables corresponds to the carrying amount.

€ thousand		Of which not overdue	Of which overdue by the following number of days at the reporting date
	Carrying amount	at the reporting date	up to 90 days	between 90 and 180 days	between 180 and 360 days	more than 360 days
31 Dec 2012 Trade receivables	568,317	391,104	96,277	28,157	22,651	30,128
31 Dec 2011 Trade receivables	585,116	402,476	97,421	26,581	30,879	27,759

1.2 Derivative fi nancial instruments

KRONES uses derivative fi nancial instruments on the basis of individual contracts solely for risk management purposes. Not using derivative fi nancial instruments would subject the company to greater fi nancial risks. These instruments essentially cover the risks arising from changes in exchange rates between the euro and the US dollar, the Australian dollar, the Canadian dollar, and the British pound. The material contractual details (amount, term) of the underlying and hedge transactions are largely identical. The risk of default relating to derivative fi nancial 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 fi nancial statements.

1.3 Other fi nancial assets

The maximum credit risk position arising from other fi nancial assets corresponds to the carrying amount 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 suffi ciently fulfi l its fi nancial obligations.

KRONES generates most of its cash and cash equivalents through operating activities. These funds primarily serve to fi nance working capital and capital expenditures. KRONES manages its liquidity by reserving suffi cient cash and cash equivalents and credit lines with banks in addition to the regular infl ow 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. This allows KRONES to be proactive about any possible liquidity bottlenecks. Apart from cash on hand, KRONES' cash and cash equivalents consist primarily of demand deposits. The following overview of maturities shows how the undiscounted cash fl ows relating to liabilities as of 31 December 2012 infl uence the company's liquidity situation.

RISKS/OPPORTUNITIES

€ thousand	Carrying	Cash fl ow		Cash fl ow		Cash fl ow
	amount at	for		for		for
	31 Dec	2013		2014–2017			2017 or later
	2012	Interest	Repayment	Interest	Repayment	Interest	Repayment
Derivative fi nancial
instruments	1,244	0	1,089	0	155	0	0
Liabilities to banks	0	0	0	0	0	0	0
Liabilities from leases	1,377	24	588	18	789	0	0
Discounted trade bills	17,056	0	14,879	0	2,177	0	0
Other fi nancial liabilities	11,092	0	10,426	133	666	0	0
	30,769	24	26,982	151	3,787	0	0

€ thousand	Carrying	Cash fl ow for 2012		Cash fl ow		Cash fl ow
	amount at				for		for
	31 Dec				2013–2016		2016 or later
	2011	Interest	Repayment	Interest	Repayment	Interest	Repayment
Derivative fi nancial
instruments	12,251	0	11,405	0	846	0	0
Liabilities to banks	0	0	0	0	0	0	0
Liabilities from leases	1,794	403	501	117	1,293	0	0
Discounted trade bills	41,757	0	34,723	0	7,034	0	0
Other fi nancial liabilities	13,280	20	12,644	127	636	0	0
	69,082	423	59,273	244	9,809	0	0

3. Market risks

Market risk is the risk of fl uctuation in the fair value or future cash fl ows of a fi nancial instrument due to changes in market prices.

3.1 Interest rate change risks

KRONES is not exposed to any material risks arising from possible fl uctuations in market interest rates.

3.2 Currency risks

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

Material items denominated in foreign currencies in accordance with IFRS 7 classes:
-------------------------------------------------------------------------------------	--	--

Currency	Currency	Currency
USD	CAD	AUD
262	742	0
7,188	2,555	2,510
654	0	0
0	0	0
0	0	0
8,104	3,297	2,510
4,418	–197	382
0	0	0
0	0	0
0	0	0
0	0	0
4,418	–197	382
12,522	3,100	2,892
0	0	0
12,522	3,100	2,892

A 10% change in the closing rate at the reporting date would have the following eff ects on income:

(+) Currency translation gains/(–) losses totalling (€ thousand)	–1,138	–282	–263
------------------------------------------------------------------	--------	------	------

3.3 Share price risks

KRONES is not exposed to any material risks arising from possible fl uctuations in share prices.

3.4 Commodity price risks

KRONES is exposed to market price risk relating to its procurement of parts and raw materials for operations. The company mitigates these possible risks through targeted procurement management and long-term supply contracts to reduce material commodity price risks.

4. Legal risks

Legal risks exist as a part of doing business. For a discussion of the legal risk arising from the Le-Nature's lawsuit, please see page 154.

Operational risks and opportunities

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 multi-dimensional order analysis process to minimise this risk. Any inquiry or order that reaches or exceeds a predefi ned size is assessed on the basis of fi nancial, technical/technological, tax, legal, 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. Our primary focus is on making our traditional fi xed costs as variable as possible by way of intelligent working time and value chain models in order to cope with sharp upward and downward changes in the markets.

4. Personnel risks

KRONES depends on highly qualifi ed employees. We ensure early access to qualifi ed 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 fl exible hours in exchange for our promise to secure employment and the future of our German sites until the year 2012.

Because the KRONES Group's segments share the same strategic orientation on the sales and procurement markets, we do not see any deviation in the opportunities and risks among the segments.

Summary

Viewed from today's perspective, KRONES is not exposed to any risks that threaten the company's continued existence. We are adapting to the changed risk situation by having introduced comprehensive measures for preventing, reducing, and hedging risks.

We expect our markets to continue to deliver growth opportunities in the long term. Our products and services for the »food and drink« sector put us very close to consumers and enable us to benefi t indirectly from global population growth and rising prosperity worldwide.

Our innovative power, our unique business model, and the quality of our products and services as well as ongoing process improvements will enable us to maintain and further expand our competitive advantage.

KLUG GmbH – KRONES' new shareholding

Development of KRONES' own in-house operations in the fi elds of material fl ow technology and intralogistics has been unsatisfactory in recent years. For this reason, we restructured this business area in early 2013 and acquired a 26% stake in KLUG GMBH integrierte Systeme (KLUG). The company, which was founded in 1995 and is located in Teunz, Bavaria, is a leading specialist for complete logistics solutions. KLUG's core expertise is project planning for highly automated logistics systems, with a focus on soft ware and control systems. At the end of 2011, KLUG GMBH had around 250 employees and sales revenue for 2011 came to around €25 million. KLUG is a profi table company.

KRONES also signed a cooperation agreement with KLUG that enables us to continue to deliver the best possible material fl ow technology and intralogistics solutions through KLUG GMBH.

KLUG has experience with customers in the food industry but is not focused on a specifi c sector. The company's product range is very similar to that of KRONES' own material fl ow technology/intralogistics operations. But because they focus exclusively on complete intralogistics solutions, KLUG has far better cost structures and is therefore profi table. Since KRONES' material fl ow technology/intralogistics operations have generated considerable losses in recent years, the shareholding and cooperation agreement will have a substantial positive impact on our consolidated net income in the years ahead.

KLUG GMBH plans to continue to grow in the years ahead. We fi rmly believe that KRONES can help support this growth. With our access to international growth markets, KLUG can acquire customer orders worldwide that would otherwise be out of the company's reach.

KRONES will have the option of acquiring a further 26% stake in KLUG GMBH on or aft er 31 December 2016. The price for these shares will depend on KLUG's earnings development up to that point.

• Uncertainties dominate global economic outlook
• German machinery sector expects output to increase
• KRONES intends to grow profi tably

World economy to grow more in 2013 than in previous year

The central banks of the USA, Japan, and Europe used expansive monetary policy to counter the eff ects of the debt and euro crises in 2012. For this reason, economic experts with the International Monetary Fund (IMF) believe there is a good chance that the global economy will gain some momentum in 2013. At the same time they are warning of considerable downside risks, including a re-escalation of the euro crisis or excessive short-term fi scal tightening in the US, which could slow economic activity. Assuming that policymakers can keep these risks under control, the IMF expects global economic growth to rise from 3.2% in the previous year to 3.5% in 2013.

The IMF says the emerging markets will be the most important source of growth in 2013. The Chinese economy, for example, is expected to expand by 8.2% in 2013 (previous year: 7.8%). Growth in India, which came to 4.5% last year, is likely to accelerate to 5.9% in 2013. In all, the rate of economic growth in the emerging markets and developing countries is expected to increase from 5.1% in 2012 to 5.5% in 2013.

Looking now to the developed industrialised countries, the euro zone will likely remain in recession in 2013. The International Monetary Fund (IMF) is forecasting 0.2% economic growth for this year for the single currency area. Within Europe, the German economy is expected to remain strong. Germany's gross domestic product (GDP) will likely rise 0.6% in 2013. For the USA, the world's biggest economy, the IMF is relatively optimistic despite the country's budget woes. Its growth forecast for the US economy is 2.0%. In Japan, continued monetary easing and the economic stimulus package will likely yield 1.2% GDP growth in 2013.

The ordering behaviour of KRONES' customers is aff ected not only by economic growth but also by unemployment and infl ation. Generally speaking, the lower these two rates are, the stronger private consumption will be. Higher consumption means higher demand for our customers' products and makes customers more willing to invest in new technology. We expect unemployment and infl ation in KRONES' major sales markets to have only slight negative eff ects on our business in 2013.

Economic growth in China and India is expected to accelerate further in 2013.

German machinery sector output to rise 2% in 2013

The new orders situation in the German machinery sector worsened slightly at the start of 2013. January orders were down 2% on the year-earlier period. A slight increase in exports lent some support. Despite the slow start to the year, the German Engineering Federation (VDMA) expects the sector to post moderate growth in 2013. The VDMA is forecasting a 2% year-on-year increase in output.

The VDMA expects this growth to vary widely from one subsector to another. The »food processing and packaging machinery« segment is likely to fare better than the machinery sector as a whole in 2013.

* Forecast Source: Germany's Federal Statistical Office

KRONES intends to grow profi tably in 2013

The medium-term business environment for KRONES remains good overall despite the global economy's volatility. In the long term, growth in the packaging machinery market will be stronger and more stable than the global economy. The steady growth of the middle class in the emerging economies and increasing urbanisation remain the biggest growth drivers. These trends are resulting in rising demand for industrially packaged food and beverages. Moreover, food and beverage producers increasingly need to use a variety of packaging options in order to stand out from the competition. That, too, drives demand for innovative packaging solutions upward.

KRONES is cautiously optimistic about the outlook for the global economy in 2013. The markets in Asia, South America, Africa, and the Middle East continue to off er good prospects for growth. KRONES intends to capitalise on its strong market position in these regions and grow its aft er-sales business. To do this, KRONES will further expand its workforce in the relevant regions in 2013 and further internationalise its human resources policy.

The North American market, which already recovered in 2012, is expected to remain stable in 2013. We expect the euro area markets to continue to show considerable capital expenditure restraint due to the ongoing euro and sovereign debt crises.

Earnings to improve further in 2013

KRONES' focus for 2013 within the Value strategy programme is on the pillars growth and profi tability. In our core segment, machines and lines for product fi lling and decoration, we intend to further improve cost structures and make them more fl exible in order to off set future cost increases. This eff ort involves making our purchasing more international and our assemblies and machines more modular. Expanding our international service structures and LCS Centres to ensure that we can provide our customers the best services and products fast is an important part of profi table growth.

The process technology segment is strategically important to KRONES since many customers want beverage production and product fi lling to be linked as seamlessly as possible. We intend to further optimise structures in our process technology segment this year. Our restructuring in the fi eld of material fl ow technology at the start of 2013 is a big fi rst step toward increasing the segment's earnings for the long term. With the measures in the material fl ow technology/intralogistics division now complete, segment earnings will no longer contain any signifi cant losses from 2013 onward.

KRONES intends to capitalise on its strong position in growth markets in 2013.

EXPECTED DEVELOPMENTS

Moreover, we intend to expand our components business, including its service portion and the product range. These measures, combined with higher capacity utilisation, should enable the segment to break even in 2013.

»KOSME«, our segment for the low output range, is also expected to post no more losses in 2013. Key topics here are stable capacity utilisation and the expansion of LCS activities. In addition, we are repositioning KOSME in the market for personal hygiene and household cleaning products. Together, these measures will bring the segment out of the red.

Overall, based on the development of KRONES' markets and the continuing uncertain economic outlook for 2013, we expect revenue to grow by 4%. KRONES does not expect any support from price levels.

Earnings performance will increase further. KRONES expects the EBT margin (earnings before taxes to sales) to be slightly over 5.5% in 2013.

This is still below our medium-term target of 7%. We want to increase our third strategy target, ROCE, to 15% this year (2012: 13.6%, adjusted to exclude Le-Nature's). Our medium- to long-term target is 20%. KRONES also intends to generate higher free cash fl ow on higher earnings and lower working capital.

According to forecasts by leading economic research institutions, the overall economic picture should improve in 2014. With this in mind and from today's perspective, we expect our key performance indicators to improve.

Despite the uncertain economic outlook, KRONES is targeting further growth in 2013.

EXPECTED DEVELOPMENTS

DISCLOSURES REQUIRED UNDER § 315 (4)

Disclosures required under § 315 (4) of the German Commercial Code (HGB)

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.

Under § 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 confi rming the shareholding, issued in German or English by the institution with which the investment account is held, constitutes suffi cient proof. This document must refer to the start of the twenty-fi rst day prior to the annual shareholders' meeting.

Pursuant to § 18 (2) of the articles of association, voting rights can be exercised by proxy. Granting, revocation, and evidence of proxy authorisation must be submitted to the company in text form. The notice convening the shareholders' meeting may specify a relaxation of this requirement. § 135 of the German Stock Corporation Act (AktG) remains unaff ected.

In the annual shareholders' meeting, the chair of the meeting 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:

Name	Direct share of
	voting rights (%)
Beteiligungsgesellschaft Kronseder mbH	15.00
Volker Kronseder	12.02
Harald Kronseder	10.09

As at 28 February 2013

Changes to the shareholdings listed above that are not required to be reported to the company may have occurred since the date given above (28 February 2013). 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 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, the appointment of regular and deputy members of the Executive Board, the execution of their employment contracts, and revocation of appointments are the responsibility of 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 authorised to make amendments that aff ect 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 the approval of the Supervisory Board, increase the share capital by a total of up to €10 million (authorised capital) through the issuance once or repeatedly of ordinary bearer shares against cash contributions up to and including 15 June 2016.

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 16 June 2010 passed a resolution authorising the company to buy treasury shares totalling up to 10% of the current share capital in compliance with statutory regulations and the provisions of the resolution by the annual shareholders' meeting up to and including 15 June 2015.

The annual shareholders' meeting on 16 June 2010 passed a resolution authorising the Executive Board to cancel treasury shares of KRONES AG acquired on the basis of the above authorisation without the cancellation or its execution requiring 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 off er.

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 off er.

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 cor porations contain the following compensation elements:

• Fixed elements
• Variable elements that are payable annually and based on business performance and
• 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 re sponsibilities, his personal performance and experience, and the economic situation, performance, and outlook of the enterprise, taking into account its peer companies.

• For the fi nancial year 2012, the direct fi xed remuneration of the fi ve active members of the Executive Board was €2,593 thousand (previous year: €2,912 thousand). This fi xed 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 benefi ts in the form of non-cash benefi ts (company car) amounting to €74 thousand (previous year: €91 thousand).
• The variable compensation is based on the achievement of company performance targets. The reference fi gures are consolidated net income (the primary point of reference), consolidated revenue, and consolidated new orders. 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 2012, the variable compensation amounted to €1,605 thousand (previous year: €2,167 thousand).

• 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 aft er 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. In 2012, as in the previous year, no such compensation came due for payment as scheduled following the 10-year waiting period.

• The performance incentive is calculated from the relevant Board member's fi xed 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 revenue 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.
• Provisions for the performance incentive amounted to €1,092 thousand at the end of the fi nancial year (previous year: €1,022 thousand).
• 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 €6,568 thousand (previous year: €3,389 thousand) were recognised for active members of the Executive Board.
• 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 confl ict with personal privacy rights.
• Thus, as resolved by the annual shareholders' meeting on 16 June 2010, detailed disclosure of each individual Executive Board member's compensation will not be made up to and including publication of the annual and consolidated fi nancial statements for the fi nancial year 2014, 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 eff ect for the Executive Board.
• For former members of the Executive Board and their surviving dependents, payments amounting to €768 thousand (previous year: €510 thousand) were made and pension provisions of €380 thousand (previous year: €693 thousand) were recognised.

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 the fi nancial year 2011, the articles of association as amended by the annual shareholders' meeting on 15 June 2011 apply.

The Supervisory Board's compensation consists of two components, an annual fi xed remuneration of €20,000 and a variable compensation. The Chairman of the Supervisory Board receives three times the amount of the fi xed remuneration and the Deputy Chairman of the Supervisory Board receives one and one half times the fi xed 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. The variable compensation of each member of the Supervisory Board is limited to a maximum of €14,000 per fi nancial year.

On this basis, the variable compensation for each member of the Supervisory Board is €8,000 for the fi nancial year 2012.

Members of the Supervisory Board who belong to special committees within the Supervisory Board receive additional compensation of €7,000 annually as well as a €1,000 fl at-rate reimbursement for expenses.

The total remuneration paid to members of the Supervisory Board amounted to €428 thousand (previous year: €356 thousand) including variable portions totalling €96 thousand (previous year: €24 thousand).

Moreover, the members of the Supervisory Board receive a fl at €1,000 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 fi nancial 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.

EXPECTED DEVELOPMENTS

COMPENSATION REPORT

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 fi nancial statements give a true and fair view of the assets, liabilities, fi nancial position, and profi t 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 2013 KRONES AG The Executive Board

Volker Kronseder Chairman

Werner Frischholz Thomas Ricker

Christoph Klenk Rainulf Diepold

The statement on corporate governance is also available online at www.krones.com.

KRONES recognises its responsibilities

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 corporate governance. The management of KRONES takes the principles and rules of corporate governance into account in all business activities.

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

»The Executive Board and the 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 as amended on 15 May 2012 have been and are being complied with in accordance with the German Corporate Governance Code, which is published on the website of KRONES AG, with the following exceptions:

A deductible is not included in the D&O policy for the Supervisory Board. (Item 3.8 of the Code)

No specifi c deductible has been set for this policy because the Supervisory Board always performs its duties properly regardless of the existence of a deductible.

The Executive Board shall be comprised of several persons and have a Chairman or Spokesman. By-laws shall govern the work of the Executive Board, in particular, the allocation of duties among individual Executive Board members, matters reserved for the Executive Board as a whole, and the required majority for Executive Board resolutions (unanimity or resolution by majority vote). (Item 4.2.1 of the Code).

The rules of procedure governing the Executive Board are set forth in the articles of association for KRONES AG, which already contain detailed rules for the work of the Executive Board. For this reason, there are no separate written by-laws.

In keeping with the resolution of the annual shareholders' meeting, total compensation of each member of the Executive Board, subdivided according to fi xed, performance-related, and long-term incentive components, is not listed individually by each member's name. (Item 4.2.4 of the Code).

KRONES discloses the structure of Executive Board compensation. Details relating to fi xed and variable, performance-related components of compensation are essential for assessing the appropriateness of the compensation structure and whether it results in an incentive eff ect for the Executive Board.

We believe that disclosing each individual's remuneration would confl ict with personal privacy rights. Thus, as resolved by the annual shareholders' meeting on 16 June 2010, detailed disclosure of each individual Executive Board member's compensation will not be made up to and including publication of the annual and consolidated fi nancial statements for the fi nancial year 2014, as provided for under § 286 (5) of the German Commercial Code.

The Supervisory Board shall establish its own by-laws. (Item 5.1.3 of the Code)

The rules of procedure governing the Supervisory Board are set forth in the articles of association for KRONES AG, which already contain detailed rules for the work of the Supervisory Board. For this reason, there are no separate written by-laws.

There is currently no nominating committee at KRONES AG. (Item 5.3.3 of the Code)

Committees are primarily useful for larger bodies if they make that body's work more effi cient. There are six shareholder representatives on the Supervisory Board of KRONES AG who suggest nominees. Therefore, we do not feel it is necessary to create a separate nominating committee.

The performance-related compensation of the members of the Supervisory Board is currently not oriented toward the sustainable growth of the enterprise. The compensation of members of the Supervisory Board is currently not itemised. Other compensation for services provided individually, in particular advisory or agency services, is not currently reported. (Item 5.4.6 of the Code).

In accordance with the company's articles of association, the performance-related compensation of the members of the Supervisory Board is currently based on the company's net income for the most recently ended fi nancial year. Through its actions and decisions, the Supervisory Board plays a key role in the company's long-term success. The company's commercial success and sustainable development are also refl ected in the net income for the year. Nevertheless, the Supervisory Board has resolved to follow this recommendation in the future and, together with the Executive Board, will propose an amendment to the articles of association to the annual shareholders' meeting in 2014. The total of compensation paid out to members of the Supervisory Board is given in the compensation report, broken down into its fi xed and variable portions. We do not believe an individual listing of compensation would provide any additional information of relevance for the capital markets. The same applies to services provided by individual members of the Supervisory Board.

The shareholdings of members of the Executive Board and the Supervisory Board of KRONES AG are not disclosed. (Item 6.6 of the Code)

In order to safeguard the protection-worthy interests and privacy of the board members, we have opted not to make this disclosure.

However, we do disclose the shareholdings of the Kronseder families holding seats on the Executive Board and the Supervisory Board in the annual report for KRONES AG.

We are not yet in compliance with the deadline for publication of the consolidated fi nancial statements of KRONES AG within 90 days of the close of the fi nancial year. (item 7.1.2 of the Code)

The annual fi nancial statements of KRONES AG are published within the statutory time period. Important fi gures for the past fi nancial year that are relevant to the capital markets are published within the 90-day limit.«

Neutraubling, 28 March 2013

For the Executive Board For the Supervisory Board

Volker Kronseder Ernst Baumann Chairman Chairman

Composition of the Supervisory Board

Pursuant to Item 5.4.1 of the German Corporate Governance Code, the Supervisory Board must specify concrete objectives relating to its composition that, while considering the company's specifi c situation, take into account the company's international activities, potential confl icts of interest, an age limit to be specifi ed for Supervisory Board members, and diversity. These concrete objectives are to stipulate an appropriate degree of female representation.

In keeping with Item 5.4.1, the Supervisory Board of KRONES has specifi ed the following objectives:

a) Composition based on suitable knowledge, skills, and experience

The Supervisory Board of KRONES AG shall be composed in such a way that its members possess the knowledge, skills, and professional experience required to properly complete the tasks of a member of the Supervisory Board of an international corporation and to preserve the public reputation of KRONES AG.

Consideration of candidates should also take into account motivation, integrity, character, professionalism, and independence.

b) Potential confl icts of interest (independence of the members)

The independence of the members of the Supervisory Board shall be ensured in order to prevent confl icts of interest. Potential candidates shall not serve as advisors to major competitors of KRONES AG and shall not hold management positions at companies that are customers, suppliers, or affi liates of KRONES AG. The Supervisory Board shall contain no more than two former members of the Executive Board.

CORPORATE GOVERNANCE

Moreover, the members of the Supervisory Board shall meet the criteria for independence under Item 5.4.2 of the Corporate Governance Code. Presuming that execution of a Supervisory Board mandate as employee representative casts no doubt on the compliance with the criteria for independence under Item 5.4.2 of the Code, the majority of the members of the Supervisory Board shall be independent within the meaning of Item 5.4.2 of the Code.

Each member of the Supervisory Board shall agree to submit a declaration to the Supervisory Board Chairman if any confl ict of interest exists. If the confl ict of interest persists over an extended period or is material, the Supervisory Board member in question must resign.

c) Age limit

The age limit for members of the Supervisory Board is 70 years. A member's term in offi ce shall end at the conclusion of the annual shareholders' meeting that follows his or her 70th birthday. Reasons must be given for any deviation from this rule.

d) International experience

KRONES AG operates internationally and has subsidiaries and offi ces in many countries around the globe. Therefore, international experience must be taken into consideration when selecting members of the Supervisory Board.

International experience relates not only to knowledge of the English language but also to work experience in other international companies.

e) Diversity

The Supervisory Board of KRONES AG shall take diversity into account and strive to achieve an appropriate degree of female representation when selecting its members. Female candidates are welcomed and shall be fairly considered in the selection of both shareholder and employee representatives.

The Supervisory Board of KRONES implemented all of the objectives a) through e) in the fi nancial year 2012.

Information on corporate governance practices

Corporate governance at KRONES is based on fairness and transparency. This principle applies both to the cooperation between the Executive Board and the Supervisory Board and to the way we deal with our employees, customers, suppliers, and the general public.

We review all strategic decisions for their long-term probability of success. Our aim is to optimise profi ts and cash fl ow in a sustainable manner.

To secure the company's long-term survival, we review all of our activities with respect to sustainability, factoring in not only our social and economic responsibilities but also the ecological conditions and consequences involved in the manufacture

and use of our products. Our production operations are eco-friendly and we not only comply with statutory regulations but make every eff ort to remain as far below the prescribed limits as possible.

Our governance principles ensure that the welfare of the very people who contribute to our success is never subordinated to economic interests. In order to prevent accidents at the workplace and work-related illness, we create a safe environment that is conducive to the good health of our employees. All of our workfl ows are designed with the safety and health of our employees in mind, and we ensure that the workplace is ergonomic and free of hazards.

When choosing our suppliers, we look at their performance with respect to sustainable, socially responsible management. KRONES has developed a suppliers' code for this purpose. The code covers safety, health, the environment, quality, human rights, employee standards, and preventing and fi ghting corruption.

Duties and activities of the Executive Board and the Supervisory Board

The Executive Board of KRONES AG consists of fi ve members, each of whom is responsible for specifi c areas of the company (see pages 6 and 158). In addition, each of the group companies is the responsibility of two members of the Executive Board. The Executive Board manages the company and its aff airs. The members of the Executive Board meet daily. At these meetings, the Executive Board discusses current and strategic topics and makes decisions. For strategically important decisions, the Executive Board involves the Supervisory Board in the decision-making process in a timely manner.

The Supervisory Board oversees the Executive Board. In accordance with the articles of association, the Supervisory Board has twelve members. The Executive Board and the Supervisory Board communicate on a regular basis. The Executive Board informs the Supervisory Board in a timely manner about business development, the company's fi nancial situation, risk management, company planning, and strategy. In addition to regular oral reports, the members of the Supervisory Board receive written reports on the company's earnings and fi nancial position from the Executive Board each month. KRONES' Supervisory Board can establish committees besides the Supervisory Board Committee but has not done so as yet.

The Chairman of the Supervisory Board coordinates the work of the Supervisory Board (see pages 11 and 158 for a listing of the members). The Chairman or Deputy Chairman presides over the Supervisory Board's meetings. The Supervisory Board makes decisions either in its meetings or, in exceptional cases, in a procedure in which the relevant documents are circulated to each member. Members of the Executive Board participate in meetings of the Supervisory Board at the invitation of the Chairman or Deputy Chairman of the Supervisory Board. The Executive Board members give oral or written reports on the agenda items and respond to questions from the Supervisory Board.

CORPORATE GOVERNANCE

Each year, the Chairman of the Supervisory Board describes the Board's activities in his report to shareholders in the annual report and at the annual shareholders' meeting.

Composition, duties, and activities of the Supervisory Board Committee

In order to perform its work in the most effi cient manner possible, the Supervisory Board has formed a Supervisory Board Committee that meets regularly.

In addition to the Chairman of the Supervisory Board Committee, Graf Philipp von und zu Lerchenfeld, the Committee consists of Supervisory Board Chairman Ernst Baumann and Deputy Chairman Werner Schrödl as well as the following Supervisory Board members: Norman Kronseder, Josef Weitzer, and Johann Robold. The Supervisory Board Committee oversees the accounting and fi nancial reporting process and the audit of the fi nancial statements and prepares corresponding proposals for resolutions for the Supervisory Board. The Committee also prepares the Supervisory Board's review of the annual fi nancial statements, the management report, and the auditor's report for the separate and consolidated fi nancial statements and makes recommendations. In addition, the Supervisory Board Committee monitors the eff ectiveness of the internal control system, the risk management system, and the internal audit system.

CONSOLIDATED FINANCIAL STATEMENTS

Separate income statement. 121
Statement of comprehensive income. 121
Statement of fi nancial position.122
Statement of cash fl ows124
Statement of changes in equity. 125

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Segment reporting.126
General disclosures.128
Notes to the statement of fi nancial position136
Notes to the separate income statement152
Other disclosures.154
Standards and interpretations156
Shareholdings 157
Members of the Supervisory Board
and the Executive Board.158
Proposal for the appropriation
of retained earnings.159

FURTHER INFORMATION

Auditor's report160
Commercial glossary.162
Technical glossary163

Separate income statement and Statement of comprehensive income

Separate income statement		2012		2011
€ thousand, except per share amounts Notes
Sales revenue	19 2,664,194		2,480,308
Increase (previous year: decrease) in inventories of finished goods and work in progress	–16,926		2,803
Other own work capitalised	20 41,802		33,377
Other operating income	21 104,353	2,793,423	98,743	2,615,231
Goods and services purchased	22
Expenses for materials and supplies and for goods purchased	–1,086,061		–1,035,675
Expenses for services purchased		–239,244 –1,325,305	–236,101	–1,271,776
Personnel expenses	23
Wages and salaries	–645,117		–613,470
Social security contributions and expenses for pension plans and for benefi ts	–132,244	–777,361	–124,973	–738,443
Depreciation and amortisation of intangible assets and property, plant and equipment 1/2		–76,685		–70,270
Other operating expenses	24	–521,781		–464,196
EBIT		92,291		70,546
Investment income	25 2,137		1,422
Income from other securities and loans classifi ed as non-current fi nancial assets	25 28		10
Other interest and similar income	25 6,925		11,035
Interest and similar expenses	25 –3,468		–8,423
		5,622		4,044
Earnings before taxes		97,913		74,590
Income tax 7/26		–30,885		–30,936
Consolidated net income		67,028		43,654
Profit share of non-controlling interests		0		0
Profit share of KRONES Group shareholders		67,028		43,654
Earnings per share (diluted/basic) in €	27	2.22		1.45

Statement of comprehensive income	2012	2011
Notes € thousand
Consolidated net income	67,028	43,654
Exchange differences on translation	–5,282	841
Available-for-sale fi nancial instruments
Derivative fi nancial instruments 11	7,028	–5,014
Other comprehensive income 8	1,746	–4,173
Total comprehensive income 8	68,774	39,481
of which attributable to KRONES Group shareholders	68,774	39,481

Assets		31 Dec 2012		31 Dec 2011
€ thousand Notes
Intangible assets 1	119,116		110,718
Property, plant and equipment 2	464,885		441,295
Non-current fi nancial assets 3	2,520		2,564
Fixed assets	586,521		554,577
Deferred tax assets 7	21,605		13,523
Trade receivables 5	8,455		17,366
Income tax receivables 7	6,624		8,071
Other assets 5	1,937		3,708
Non-current assets		625,142		597,245
Inventories 4	648,442		642,826
Trade receivables 5	559,862		567,750
Current income tax receivables 7	12,603		4,521
Other assets 5	90,634		101,990
Cash and cash equivalents 6	132,920		125,496
Current assets		1,444,461		1,442,583
Total		2,069,603		2,039,828

Equity and liabilities		31 Dec 2012		31 Dec 2011
€ thousand	Notes
Share capital	8	40,000		40,000
Capital reserves	9	66,807		66,750
Profi t reserves	10	368,819		373,383
Other reserves	11	1,389		–5,639
Group retained earnings		359,152		311,000
Group equity of the parent company			836,167		785,494
Non-controlling interests	12	0		0
Equity	8		836,167		785,494
Provisions for pensions	13	87,557		82,278
Deferred tax liabilities	7	21,142		3,869
Other provisions	14	35,537		32,250
Liabilities to banks	15	0		0
Trade payables	15	6,829		0
Other fi nancial liabilities	15	2,177		7,034
Other liabilities	15	1,811		8,189
Non-current liabilities			155,053		133,620
Other provisions	14	128,666		176,065
Provisions for taxes	14	14,030		10,682
Liabilities to banks	15	0		0
Advances received	15	497,163		443,452
Trade payables	15	197,849		201,326
Current income tax liabilities	7	558		201
Other fi nancial liabilities	15	14,879		34,723
Other liabilities and accruals	15	225,238		254,265
Current liabilities			1,078,383		1,120,714
Total			2,069,603		2,039,828

		2012	2011
€ thousand	Notes
Earnings before taxes		97,913	74,590
Depreciation and amortisation (reversals)	1/2	76,685	70,270
Decrease (previous year: increase) in provisions and accruals	14/15	–56,715	31,218
Deferred tax item changes recognised in profi t or loss	7	–4,419	–4,516
Interest expenses and interest income	25	–3,457	–2,612
Gains and losses from the disposal of non-current assets	21/24	–221	–1,338
Other non-cash expenses and income		–1,340	–3,252
Decrease (previous year: increase) in trade receivables and other assets not attributable
to investing or fi nancing activities		28,379	–55,795
Increase in inventories	4	–8,090	–59,894
Increase in trade payables and other liabilities not attributable to investing or fi nancing activities		38,502	67,368
Cash generated from operating activities		167,237	116,039
Interest paid		–2,779	–2,992
Income tax paid and refunds received		–27,837	–18,976
Cash flow from operating activities		136,621	94,071
Cash payments to acquire intangible assets		–39,123	–34,555
Proceeds from the disposal of intangible assets	1	11	64
Cash payments to acquire property, plant and equipment		–71,732	–71,477
Proceeds from the disposal of property, plant and equipment	2	1,983	2,381
Cash payments to acquire non-current fi nancial assets		–47	–652
Proceeds from the disposal of non-current fi nancial assets		91	225
Cash payments to acquire shares in affi liated companies	12	0	–853
Interest received		707	1,956
Dividends received		2,137	1,422
Cash flow from investing activities		–105,973	–101,489
Cash payments to company owners		–18,101	–12,067
Cash payments to pay lease liabilities	15	–1,904	–2,061
Cash flow from fi nancing activities		–20,005	–14,128
Net change in cash and cash equivalents		10,643	–21,546
Changes in cash and cash equivalents arising from exchange rates		–3,219	–675
Changes in cash and cash equivalents arising from the consolidated group		0	270
Cash and cash equivalents at the beginning of the period		125,496	147,447
Cash and cash equivalents at the end of the period	6	132,920	125,496

Parent company									Group equity
€ thousand	Share capital	Capital reserves	Profit reserves	Currency diff erences in equity	Other reserves	Group retained earnings	Equity	Equity
Notes	8	9	10		11			12
At 1 January 2011	40,000	66,645	389,078	8,043	–625	254,939	758,080	853	758,933
Dividend payment (€0.40 per share)						–12,067	–12,067		–12,067
Consolidated net income 2011						43,654	43,654		43,654
Deduction from profi t reserves			–25,000			25,000	0		0
Allocation to profi t reserves			421			–421	0		0
Allocation to capital reserves		105				–105	0		0
Changes in the consolidated group							0	–853	–853
Currency diff erences				841			841		841
Hedge accounting					–5,014		–5,014		–5,014
At 31 December 2011	40,000	66,750	364,499	8,884	–5,639	311,000	785,494	0	785,494
Dividend payment (€0.60 per share)						–18,101	–18,101		–18,101
Consolidated net income 2012						67,028	67,028		67,028
Deduction from profi t reserves			0			0	0		0
Allocation to profi t reserves			718			–718	0		0
Allocation to capital reserves		57				–57	0		0
Currency diff erences				–5,282			–5,282		–5,282
Hedge accounting					7,028		7,028		7,028
At 31 December 2012	40,000	66,807	365,217	3,602	1,389	359,152	836,167	0	836,167

	Machines and lines for product fi lling and decoration		Machines and lines for beverage production/ process technology		Machines and lines for the low output range (KOSME)
€ thousand	2012	2011	2012	2011	2012	2011
Sales revenue	2,258,252	2,137,023	311,902	259,735	94,039	83,550
Germany	195,408	222,121	25,745	30,011	2,967	1,115
Rest of Europe	563,952	572,585	60,552	52,532	55,682	50,049
Other regions	1,498,893	1,342,317	225,606	177,193	35,390	32,386
Depreciation and amortisation	66,443	63,532	8,475	4,673	1,767	2,065
of which unscheduled write-down	0	0	2,796	0	0	0
Interest income					25	43
Interest expense					226	598
EBT	119,170	108,909	–13,649	–19,334	–7,608	–14,985
Other material non-cash income and expenses	898	3,525	562	129	–120	–402
Assets	1,732,583	1,764,922	252,983	206,562	79,489	71,868
Germany	1,284,070	1,369,671	252,983	206,562	0	0
Rest of Europe Other regions	93,769 354,745	87,863 307,388	0 0	0 0	79,489 0	71,868 0
Liabilities	909,347	964,566	266,907	249,860	58,456	55,481
Capital expenditure for intangible assets and property,
plant and equipment	100,820	94,427	8,093	10,343	1,942	1,261
Germany	93,810	82,050	8,093	10,343	0	0
Rest of Europe	692	795	0	0	1,942	1,261
Other regions	6,319	11,582	0	0	0	0
Return on sales (EBT to sales)	5.3%	5.1%	–4.4%	–7.4%	–8.1%	–17.9%

Total for the segments		Consolidation		Other		KRONES GROUP
2012	2011	2012	2011	2012	2011	2012	2011
						2,664,194	2,480,308
						224,119	253,247
						680,186	675,165
						1,759,889	1,551,896
						76,685	70,270
						2,796	0
				6,900	10,992	6,925	11,035
				3,242	7,825	3,468	8,423
						97,913	74,590
						1,340	3,252
2,065,056	2,043,352	–37,004	–30,325	41,551	26,801	2,069,603	2,039,828
1,537,053	1,576,233	–21,960	–21,560	41,551	26,801	1,556,644	1,581,474
173,258	159,731	–14,426	–7,878	0	0	158,832	151,853
354,745	307,388	–618	–887	0	0	354,127	306,501
1,234,710	1,269,907	–37,004	–30,325	35,730	14,752	1,233,436	1,254,334
						110,856	106,031
						101,903	92,393
						2,634	2,056
						6,319	11,582
						3.7%	3.0%

Legal basis

The consolidated fi nancial statements of KRONES AG (»KRONES Group«) for the period ended 31 December 2012 have been prepared in accordance with the International Financial Reporting Standards (IFRSs) of the International Accounting Standards Board (IASB), London, applicable at the end of the reporting period, 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 fi rst time is on page 156. The Executive Board authorised these consolidated fi nancial statements for issue on 28 March 2013.

Non-controlling interests in group equity, if applicable, are presented on the statement of fi nancial position as a special item within equity. Profi t or loss shares attributable to non-controlling interests, if applicable, are recognised on the separate income statement and the statement of comprehensive income as part of consolidated net income. If applicable, the shares of consolidated net income attributed to the owners of the parent company and to non-controlling interests are presented separately.

If applicable, non-controlling interests have been added to the statement of changes in equity. The following explanatory notes comprise disclosures and remarks that, under IFRSs, must be included as notes to the consolidated fi nancial statements in addition to the statement of fi nancial position, the separate income statement and statement of comprehensive income, the statement of changes in equity, and the statement of cash fl ows.

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

Consolidated group

Besides KRONES AG, the consolidated fi nancial statements for the period ended 31 December 2012 include all material domestic and foreign subsidiaries in which KRONES AG holds more than 50% of the voting rights.

KRONES acquired another 50% stake in KONPLAN S.R.O., Prague, Czech Republic, in the fi nancial year 2012. As a result, KRONES AG now holds a direct 100% stake in this company and an indirect stake in its subsidiaries. Moreover, KRONES Makina Sanayi ve Ticaret Ltd. Sirketi, Istanbul, Turkey, was established and acquisition accounting was done to include it in the consolidated group.

The fi rst-time consolidation of the newly established company was eff ected at the time of acquisition.

Consolidation principles

The separate fi nancial statements of the companies included in the consolidated fi nancial statements are prepared in accordance with uniform accounting policies and were all prepared as of the end of the reporting period of the consolidated fi nancial statements.

Capital consolidation 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.

Goodwill that arose before 1 January 2004 is still recognised in reserves.

If applicable, shares in the equity of subsidiaries that are not held by the parent company are reported as »non-controlling interests«.

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

This also applies for inter-company profi ts from deliveries eff ected or services rendered between group companies provided the amounts from these transactions are still held by the group at the end of the reporting period.

Currency translation

The functional currency for KRONES AG is the euro.

The fi nancial statements of the consolidated companies that are denominated in a foreign currency are translated on the basis of the functional currency concept under IAS 21 using a modifi ed closing rate method. Because the subsidiaries primarily operate independently in the economic environment of their respective countries, the functional currency is always the relevant local currency for each subsidiary. In the consolidated fi nancial statements, assets and liabilities are therefore translated at the closing rate as at the end of the reporting period, while income and expenses from the fi nancial statements of subsidiaries are translated at average annual rates.

Any exchange diff erences resulting from translation using these diff erent rates in the statement of fi nancial position and the separate income statement and statement of comprehensive income are recognised directly in other comprehensive income. Exchange diff erences resulting from the translation of equity using historical exchange rates are also recognised in other comprehensive income.

In the separate fi nancial 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 diff erences are recognised in profi t or loss at the closing rate. Non-monetary items in foreign currencies are stated at historical cost.

Exchange rate diff erences compared with the previous year arising from capital consolidation are recognised outside profi t or loss (in equity) in other profi t reserves.

NOTES

		Closing rate		Average rate
		31 Dec 2012	31 Dec 2011	2012	2011
US dollar	USD	1.319	1.293	1.286	1.393
British pound	GBP	0.816	0.837	0.811	0.868
Swiss franc	CHF	1.207	1.217	1.205	1.233
Danish krone	DKK	7.461	7.434	7.444	7.451
Canadian dollar	CAD	1.312	1.319	1.285	1.377
Japanese yen	JPY	113.650	100.070	102.646	111.040
Brazilian real	BRL	2.700	2.414	2.510	2.326
Chinese renminbi (yuan)	CNY	8.215	8.144	8.116	9.002
Mexican peso	MXN	17.206	18.073	16.912	17.287
Ukrainian hryvnia	UAH	10.614	10.363	10.391	11.120
South African rand	ZAR	11.187	10.476	10.553	10.083
Kenyan shilling	KES	113.593	110.223	108.692	123.642
Nigerian naira	NGN	205.960	209.840	204.178	216.949
Russian ruble	RUB	40.249	41.687	39.925	40.872
Thai baht	THB	40.334	40.829	39.929	42.433
Indonesian rupiah	IDR	12,707.500	11,730.600	12,039.824	12,201.906
Angolan kwanza	AOA	126.640	122.920	122.658	130.571
Turkish lira	TRY	2.356	2.446	2.315	2.335

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

Accounting policies

The separate fi nancial 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 fi nancial 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

Acquired and internally generated intangible assets, excluding goodwill, are capitalised pursuant to IAS 38 if it is suffi ciently probable that the use of the asset will result in a future economic benefi t 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 fi ve years and is recognised under »Depreciation and amortisation of intangible assets and property, plant and equipment«.

Research and development expenditure

Development expenditure of the KRONES Group is capitalised at cost to the extent that costs can be allocated clearly and the technical feasibility and a future economic benefi t as a result of their use are probable. According to IAS 38, research expenditure cannot be capitalised and is, therefore, recognised as an expense directly in profi t or loss. Borrowing costs are capitalised as cost at a capitalisation rate of 0.60%.

Goodwill

There is no goodwill in these consolidated accounts.

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.

A revaluation of property, plant and equipment pursuant to IAS 16 was not carried out.

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

Useful life	In years
Buildings	14 – 50
Technical equipment and machinery	5 – 18
Furniture and fi xtures and offi ce equipment	3 – 15

In fi guring the useful lives, the diff erent components of an asset with signifi cantly diff erent 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.

Government grants related to assets are deducted from the cost of the asset and recognised in profi t and loss in the subsequent periods in the proportions in which depreciation expense on those assets is recognised.

Leases

Leases in which the KRONES Group, as the lessee, bears substantially all the risks and rewards incidental to ownership of the leased asset are treated as fi nance leases pursuant to IAS 17 upon inception of the lease. The leased asset is recognised as a non-current 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 the »lease term« and its »useful life«. Payment obligations for future lease instalments are recognised under »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 instruments held for trading (derivative fi nancial instruments)
• Available-for-sale fi nancial instruments
• Financial receivables and liabilities

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

The non-current fi nancial assets are not traded on the market and are therefore recognised at amortised cost.

The fair values and carrying amounts are based on customary market rates and observable ongoing market transactions (Level 2 under IFRS 7.27A).

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

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

Pursuant to IAS 39, the classes under IFRS 7 also include cash proceeds and liabilities from fi nance leases in addition to the categories listed above.

Disclosures about risk reporting as specifi ed under IFRS 7 are included in the risk report within the consolidated management report.

Non-current fi nancial assets

Non-current fi nancial assets other than securities are recognised at cost, less impairment losses. Non-current securities are classifi ed as »available for sale« and recognised at fair value in other comprehensive income. No assets are classifi ed as »held to maturity«.

Moreover, the »fair value option« provided for under IAS 39 is not applied to any items on the consolidated statement of fi nancial position for the KRONES Group.

Derivative fi nancial instruments

The derivative fi nancial 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 risk arising from exchange rates and cash fl ows in foreign currencies. The currencies materially aff ected by this are the US dollar, Australian dollar, Canadian dollar, and British pound.

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 eff ective, thus hedging the exchange rate and achieving planning security.

The derivative fi nancial instruments are measured at fair value at the end of the reporting period. The fair values are determined using Level 2 inputs under IFRS 7.27A. Gains and losses from the measurement are recognised as profi t or loss on the separate income statement and the statement of comprehensive income unless the conditions for hedge accounting are met.

The derivative fi nancial instruments for which hedge accounting is applied comprise forward currency contracts and currency swaps whose changes in fair value are recognised as a »fair value hedge« in profi t or loss or a »cash fl ow hedge« as part of equity. In the case of cash fl ow hedges, to mitigate currency risks from existing underlying transactions, changes in fair value are initially recognised directly in equity and subsequently reclassifi ed to profi t and loss when the hedged item aff ects profi t or loss. These derivative fi nancial 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 fi nancial instruments, are assets that are not held for trading. They are recognised 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 identifi able risks. The indicators used for this are the ageing of the receivables and the customer's business situation.

Inventories

Inventories are carried at the lower of cost and net realisable value. Cost includes those costs that are directly related to the units of production and an appropriate portion of fi xed and variable production overheads. The portion of overheads is determined on the basis of normal capacity of the production facilities.

Selling costs and general administrative 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 specifi c customers

Construction contracts for specifi c customers are recognised by reference to the stage of completion pursuant to IAS 11 (»percentage of completion method«). Under this method, contract revenue for the line and machinery portion is recognised in accordance with the percentage of physical completion of the lines and machines at the end of the reporting period. The percentage of completion for the assembly and installation portion corresponds to the ratio of contract costs incurred up to the end of the reporting period to the total costs calculated for the assembly and installation portion. Construction contracts that are ongoing at the end of the reporting period are recognised under trade receivables.

Deferred tax items

Deferred tax assets and liabilities are recognised using the statement of fi nancial position-oriented »liability method«, which involves recognising deferred tax items for all temporary differences between the tax base of an asset or liability and its carrying amount on the statement of fi nancial position under IFRSs and for consolidation procedures recognised in profi t or loss.

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 suffi cient certainty that they will occur. Where permissible under law, deferred tax assets and liabilities have been off set.

Provisions for pensions

Provisions for pensions are calculated using the »projected unit credit method« pursuant to IAS 19. Under this method, known vested benefi ts at the end of the reporting period as well as expected future increases in pensions and salaries are taken into account with due consideration to relevant factors that will aff ect the benefi t 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 the net cumulative unrecognised actuarial gains and losses at the end of the previous reporting period exceeded the greater of

• a) 10% of the present value of the defi ned benefi t obligation at that date (before deducting plan assets); and
• b) 10% of the fair value of any plan assets at that date.

Other provisions

Other provisions are recognised when the group has an obligation to a third party as a result of a past event, an outfl ow 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 end of the reporting period.

Financial liabilities

For initial recognition, in accordance with IAS 39, fi nancial liabilities are measured at the cost that is equal to the fair value of the consideration received. Transaction costs are included in this initial measurement of fi nancial liabilities. Aft er initial recognition, all fi nancial liabilities are measured at amortised cost.

Revenue

With the exception of those contracts that are measured according to IAS 11, revenue is recognised, in accordance with the criteria laid out under IAS 18, when the signifi cant risks and rewards of ownership are transferred, when a price is agreed or can be determined, and economic benefi t from the sale of goods is suffi ciently probable.

Revenue is reported less reductions.

Segment reporting

KRONES reports on three operating segments, which are the strategic business units. They are organised by product divisions and services and managed separately due to the diff erent technologies they cover. The Executive Board, as the chief operating decision maker, manages the company as a whole on the basis of monthly reports from the segments.

Segment 1 comprises machines and lines for product fi lling and decoration. Segment 2 comprises machines and lines for beverage production and process technology. Segment 3 comprises machines and lines for the low output range.

The accounting policies used are the same as those described under »General disclosures« above.

Segment performance is measured on the basis of internal reports made to the Executive Board, in particular, segment revenues and segment EBT.

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

1 Intangible assets

The carrying amount of the intangible assets has changed as follows:

€ thousand	Industrial property
	rights and similar	Capitalised
	rights and assets as	development
	well as licenses	expenditure	Total
1 January 2011
Cost	88,815	162,562	251,377
Accumulated amortisation	74,227	76,568	150,795
Net carrying amount	14,588	85,994	100,582
Changes in 2011
Cost
Consolidated additions	83	0	83
Additions	10,567	23,988	34,555
Disposals	3,876	0	3,876
Currency diff erences	–75	0	–75
Amortisation
Consolidated additions	22	0	22
Additions	8,116	16,287	24,403
Disposals	3,812	0	3,812
Currency diff erences	–62	0	–62
Net carrying amount at 31 December 2011	17,023	93,695	110,718
1 January 2012
Cost	95,514	186,550	282,064
Accumulated amortisation	78,491	92,855	171,346
Net carrying amount	17,023	93,695	110,718
Changes in 2012
Cost
Additions	11,157	27,966	39,123
Disposals	1,922	0	1,922
Currency diff erences	–153	0	–153
Amortisation
Additions	5,777	24,926	30,703
Disposals	1,911	0	1,911
Currency diff erences	–142	0	–142
Net carrying amount at 31 December 2012	22,381	96,735	119,116
31 December 2012
Cost	104,596	214,516	319,112
Accumulated amortisation	82,215	117,781	199,996
Net carrying amount	22,381	96,735	119,116

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

The capitalised development expenditure relates to new machinery projects of KRONES AG. The development expenditure capitalised in the reporting period amounts to €27,966 thousand (previous year: €23,988 thousand). This fi gure includes borrowing costs totalling €100 thousand (previous year: €302 thousand). Including capitalised development expenditure, a total of €121,168 thousand was spent on research and development in 2012 (previous year: €123,064 thousand). In the reporting period, a €2,796 thousand write-down on intangible assets was recognised within the depreciation and amortisation fi gure (previous year: €0 thousand) and relates to the segment »machines and lines for beverage production/process technology«. The write-down is for capitalised development projects to which no further benefi t can be attributed.

2 Property, plant and equipment

For property, plant and equipment, there were no impairment losses and no reversals under depreciation pursuant to IAS 36 in 2012 or the previous year.

In 2012, the carrying amounts for property, plant and equipment included grants of €211 thousand (previous year: €261 thousand). Of the grants, €50 thousand (previous year: €50 thousand) were recognised in profi t and loss by way of a reduced depreciation charge in 2012. No reversals (previous year: €272 thousand) are included in the depreciation fi gure.

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 €1,472 thousand (previous year: €13,203 thousand), which are to be attributed as the economic property of the relevant group company due to the provisions of the underlying lease (fi nance lease).

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

€ thousand	31 Dec 2012	31 Dec 2011
Land, land rights and buildings, including buildings on third-party land	767	12,353
Technical equipment and machinery	91	231
Other equipment, furniture and fixtures, and offi ce equipment	614	619
Total	1,472	13,203

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

NOTES

Property, plant and equipment have changed as follows:

€ thousand	Land and	Technical	Other	Construction	Total
	buildings	equipment	equipment,	in progress
			and furniture and
		machinery	fi xtures, and
			offi ce
			equipment
1 January 2011
Cost	394,179	236,712	209,758	5,215	845,864
Accumulated depreciation	119,895	158,975	150,694	0	429,564
Net carrying amount	274,284	77,737	59,064	5,215	416,300
Changes in 2011
Cost
Consolidated additions	0	0	293	0	293
Additions	12,565	20,605	29,865	8,442	71,477
Disposals	352	8,628	36,295	46	45,321
Transfers	3,605	2,530	352	–6,487	0
Currency diff erences	663	531	205	97	1,496
Depreciation
Consolidated additions	0	0	79	0	79
Additions	11,378	13,427	21,334	0	46,139
Disposals	329	8,442	35,507	0	44,278
Reversals	272	0	0	0	272
Currency diff erences	409	543	330	0	1,282
Net carrying amount
at 31 December 2011	279,579	87,247	67,248	7,221	441,295
1 January 2012
Cost	410,660	251,750	204,178	7,221	873,809
Accumulated depreciation	131,081	164,503	136,930	0	432,514
Net carrying amount	279,579	87,247	67,248	7,221	441,295
Changes in 2012
Cost
Consolidated additions	0	0	74	0	74
Additions	6,764	18,070	22,890	24,008	71,732
Disposals	855	7,441	27,890	4	36,190
Transfers	1,156	1,569	477	–3,202	0
Currency diff erences	–165	–665	–490	–20	–1,340
Depreciation
Consolidated additions	0	0	32	0	32
Additions	11,491	11,224	23,267	0	45,982
Disposals	280	7,045	27,103	0	34,428
Currency diff erences	–165	–388	–347	0	–900
Net carrying amount
at 31 December 2012	274,371	93,596	65,999	30,919	464,885
31 December 2012
Cost	416,498	261,890	198,778	30,919	908,085
Accumulated depreciation	142,128	168,294	133,778	0	443,200
Net carrying amount	274,371	93,596	65,999	30,919	464,885

3 Non-current fi nancial assets

The non-current fi nancial assets consist primarily of lendings.

4 Inventories

The inventories of the KRONES Group are composed as follows:

€ thousand	31 Dec 2012	31 Dec 2011
Materials and supplies	176,132	189,473
Work in progress	222,475	207,036
Finished goods	139,731	169,192
Goods purchased for sale	100,455	69,253
Other inventories	9,649	7,872
Total	648,442	642,826

Inventories are recognised at the lower of cost and fair value less selling expenses.

Write-downs of €25,902 thousand on inventories were recognised as expense in 2012 (previous year: €14,832 thousand) and are based substantially on customary net realisable values and obsolescence allowances. The amount of reversals of write-downs recognised in profi t and loss due to improved market conditions was insignifi cant. The carrying amount of the inventories recognised at fair value less selling expenses totalled €55,325 thousand in the reporting period (previous year: €61,641 thousand).

5 Receivables and other assets

€ thousand	31 Dec 2012	31 Dec 2011
Trade receivables	568,317	585,116
(of which amounts are due in 12 months or later)	8,455	17,366
Other assets	92,571	105,698
(of which amounts are due in 12 months or later)	1,937	3,708

For receivables from customers, the amounts recognised correspond to the fair values.

The allowance account developed as follows:
---------------------------------------------

At 1 January 2012
Change in the consolidated group and eff ects of currency translation
Additions	6,979
Reversals	7,971
At 31 December 2012	21,704

The trade receivables at 31 December 2012 include gross amounts due from customers for contract work totalling €44,649 thousand (previous year: €27,712 thousand). These amounts relate to construction contracts in which costs incurred plus recognised profi ts less the sum of recognised losses exceeds progress billings and advances received. There are no gross amounts due to customers for contract work.

The other assets include primarily advances paid (€18,824 thousand; previous year: €23,605 thousand), current tax assets (€47,465 thousand; previous year: €39,730 thousand), prepaid expenses (€5,261 thousand; previous year: €4,772 thousand), and creditors with debit balances (€1,361 thousand; previous year: €2,013 thousand).

The derivative fi nancial 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 free-standing hedge transactions, amounted to €3,170 thousand in 2012 (previous year: €21 thousand).

6 Cash and cash equivalents

Apart from cash on hand amounting to €232 thousand (previous year: €209 thousand), the cash and cash equivalents of €132,920 thousand (previous year: €125,496 thousand) consist primarily of demand deposits. Changes in cash and cash equivalents under IAS 7 »Statement of cash fl ows« are presented in the statement of cash fl ows on page 124.

7 Income tax

Income tax receivables and liabilities consist exclusively of income tax pursuant to IAS 12.

The income tax breaks down as follows:

€ thousand	31 Dec 2012	31 Dec 2011
Deferred tax expense/income (–)	4,419	4,516
Current tax	26,466	26,420
Total	30,885	30,936

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 15.0% plus a solidarity surcharge of 5.5% and a local business tax rate (Gewerbesteuerhebesatz) for KRONES AG that averages 328% apply.

Thus, the total income tax rate for the companies in Germany is 27.3%. Abroad, the tax rates are in the 20% to 38% range. The 27.3% rate was used to calculate deferred taxes.

€ thousand		Deferred tax assets		Deferred tax liabilities
	31 Dec 2012	31 Dec 2011	31 Dec 2012	31 Dec 2011
Intangible assets	28	219	26,966	25,954
Property, plant and equipment	45	60	12,703	15,200
Non-current fi nancial assets	1	6	1	0
Other non-current assets	65	0	1,454	2,927
Inventories	3,224	2,477	129	480
Other current assets	7,770	5,496	4,938	3,442
Tax loss carryforwards	20,746	25,633	0	0
Provisions, non-current	9,807	8,543	0	0
Other non-current liabilities	216	3,173	727	840
Provisions, current	13,927	11,489	1,827	1,902
Other current liabilities	123	416	6,642	604
Cash flow hedging	297	2,796	1,220	6
Consolidation	821	701	0	0
Subtotal	57,070	61,009	56,607	51,355
Offsetting (–)	–35,465	–47,486	–35,465	–47,486
Total	21,605	13,523	21,142	3,869

The deferred tax assets and liabilities at 31 December 2012 break down by items on the statement of fi nancial position as follows:

The deferred tax assets and liabilities recognised in other comprehensive income amounted to €458 thousand at the end of the reporting period (previous year: €4,341 thousand) and resulted from hedging activities. The deferred tax items recognised on loss carryforwards relate to KRONES AG and KRONES INC., USA. 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 €44,996 thousand.

The tax expense of €30,885 thousand reported in 2012 is €4,155 thousand higher than the expected tax expense that would theoretically result from application of the domestic tax rate of 27.3% at the group level. The diff erence can be attributed to the following:

€ thousand	31 Dec 2012	31 Dec 2011
Earnings before taxes	97,913	74,590
Tax rate for the parent company KRONES AG	27.30%	27.30%
Expected (theoretical) tax expense	26,730	20,363
Adjustments due to different tax rates	–4,928	1,158
Reductions in tax due to tax-free earnings		–13,232
Tax loss carryforwards		3,557
Increases in tax expense due to non-deductible expenses		15,087
Tax income (–) / tax expense (+) for previous years	388	2,930
Other	1,085	1,073
Income tax	30,885	30,936

The diff erence between reductions in taxes and increases in taxes for 2012 yields a net increase in taxes. This is primarily attributable to non-deductible operating expenses and tax audits. Penalty interest is recognised under tax expense.

8 Equity

KRONES AG's share capital amounted to €40,000,000.00 at 31 December 2012, unchanged on the previous year. It is divided into 31,593,072 ordinary bearer shares, each with a theoretical par value of €1.27 per share.

The company is authorised pursuant to § 71 (1) No. 8 of the German Stock Corporation Act (AktG) to buy treasury shares totalling up to 10% of the current share capital in compliance with the provisions of the law and of the resolution.

The authorisation can be exercised by the company, by its consolidated companies, or by a third party acting on its or their behalf, either in whole or in part, once or multiple times, in pursuit of one or multiple purposes.

The authorisation becomes eff ective upon resolution by the annual shareholders' meeting and applies until the end of the day 15 June 2015. The authorisation resolved by the annual shareholders' meeting on 16 June 2010 (agenda item 6) expires when this new authorisation takes eff ect.

The amount of treasury shares purchased under this authorisation, together with other treasury shares that the company has already acquired or still holds or shares that the company is deemed to hold pursuant to §§ 71 a et seq. of the German Stock Corporation Act, shall at no time exceed 10% of the company's share capital. The authorisation shall not be used for the purpose of trading in the company's shares.

The acquisition may be carried out, at the discretion of the Executive Board, (1) through a stock exchange, (2) through a public tender off er, or (3) through a public call for tenders.

If the shares are purchased directly through a stock exchange, the consideration paid per share (excluding incidental costs) shall not exceed by more than 10% and not fall short of by more than 10% the opening price in the XETRA trading system (or any comparable successor system) on the Frankfurt Stock Exchange on the trading day.

If the shares are purchased through a public tender off er or a public call for tenders, the tender price per share or the high and low ends of the price range per share (excluding incidental costs) shall not exceed by more than 20% and not fall short of by more than 20% the opening price in the XETRA trading system (or any comparable successor system) on the Frankfurt Stock Exchange on the third trading day prior to the public announcement of the public tender off er or public call for tenders (the »relevant price«). If signifi cant deviations from the relevant price occur aft er the publication of an announcement of a public tender off er or a public call for tenders, the off er or invitation to tender can be adjusted.

In such a case, the basis of any adjustment shall be the corresponding price on the last trading day prior to the public announcement of any adjustment. The tender off er or call for tenders can stipulate additional conditions. If the tender off er is oversubscribed – or, in the case of a call for tenders, if there are several tenders of equal value and the total amount exceeds the total amount accepted – acceptance must be granted on a pro-rated basis. Provision may be made for preferential acceptance of small lots of up to 100 tendered shares per shareholder.

The Executive Board is authorised to use shares of the company that are purchased under this authorisation for any lawful purpose, including any of the following:

The shares can be sold in return for contributions in kind, particularly as part of business combinations or the acquisition of companies, parts of companies, or interests in companies.

The shares can be sold by means other than a stock exchange if they are sold at a price not substantially below the stock exchange price of the company's shares at the time of the sale.

The shares can be cancelled without the cancellation or its execution requiring a further resolution by the annual shareholders' meeting.

These authorisations relating to the use of treasury shares can be exercised once or multiple times, individually or jointly, in whole or in part.

The shareholders' subscription rights on these treasury shares are excluded insofar as these shares are sold in return for contributions in kind or sold by means other than the stock exchange in accordance with the above authorisation.

The authorisations relating to the use of treasury shares and to the subscription rights of shareholders apply to treasury shares already purchased by the company under authorisations resolved by previous annual shareholders' meetings.

By resolution of the annual shareholders' meeting on 15 June 2011, the Executive Board is authorised to increase the company's share capital, with the approval of the Supervisory Board, by up to €10 million (authorised capital) through the issuance once or repeatedly of ordinary bearer shares against cash contributions up to and including 15 June 2016. Shareholders must be granted subscription rights to these shares. However, the Executive Board may exclude the subscription rights of shareholders for any fractional amounts that may arise. Moreover, the Executive Board is authorised to determine the further details of the capital increase and its implementation, both with the approval of the Supervisory Board. The Supervisory Board is authorised to amend the articles of association in accordance with any utilisation of the authorised capital and upon expiration of the term of the authorisation.

The changes in equity that are not recognised in profi t or loss (excluding dividends) totalled €1,746 thousand in the reporting period (previous year: –€4,173 thousand) and consist of changes in currency diff erences and hedge accounting under other reserves. The sum of changes in equity that are not recognised in profi t or loss and those that are recognised in profi t or loss, was €68,774 thousand (previous year: €39,481 thousand).

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).

9 Capital reserves

The capital reserves total €66,807 thousand (previous year: €66,750 thousand). The capital reserves do not include any additional capital contributions under § 272 (2) No. 4 of the German Commercial Code (HGB).

10 Profi t reserves

The legal reserve remains unchanged from the previous year at €51 thousand.

The other profi t reserves include the recognition of negative goodwill from capital consolidation for subsidiaries consolidated before 1 January 2004 and adjustments made directly in equity at 1 January 2004 as part of the fi rst-time application of IFRSs.

Apart from the currency translations of fi nancial statements of foreign subsidiaries that are recognised in other comprehensive income, currency diff erences recognised under profi t reserves also include exchange diff erences resulting from the translation of equity using historical exchange rates.

11 Other reserves

The other reserves include the eff ects from the recognition in equity of fi nancial instruments measured aft er taxes.

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

€ thousand	Reserve for cash fl ow hedges	Reserve for the fair value of securities	Total
At 1 January 2011	–619	–6	–625
Measurement change recognised in equity	–7,157	–3	–7,160
Tax on items taken directly to or transferred from equity		1	2,281
Currency diff erence			–135
At 31 December 2011		–8	–5,639
Measurement change recognised in equity		9	11,454
Tax on items taken directly to or transferred from equity	–4,362	–3	–4,365
Currency diff erence	–61		–61
At 31 December 2012	1,391	–2	1,389

12 Non-controlling interests

As in the previous year, there were no non-controlling interests in the fi nancial year 2012.

A detailed overview of the composition of and changes to the individual equity components for the KRONES Group in 2012 and the previous year is presented in the statement of changes in equity on page 125.

13 Provisions for pensions

The provisions for pensions have been recognised for obligations relating to vested benefi ts and current benefi t payments to eligible active and former employees of the companies of the KRONES Group and their surviving dependants. 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 defi ned contribution plans or defi ned benefi t plans.

In defi ned 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.

In defi ned benefi t plans, the company undertakes an obligation to render the benefi ts promised to active and former employees, whereby a distinction is made between systems that are fi nanced by provisions and those fi nanced through pension funds. The amount of the pension obligations (»defi ned benefi t obligation«) has been computed in accordance with actuarial methods. Apart from the assumptions regarding life expectancy based on the 2005 Heubeck actuarial tables, the following factors were also taken into account in the actuarial calculation:

%	Germany		Other countries, average
	2012	2011	2012	2011
Discount rate	3.60	4.40	6.93	6.90
Projected increases in wages and salaries	0.00	0.00	6.60	6.60
Projected increases in state pensions	2.00	2.00	0.00	0.00

The rate recommendations for measuring pension liabilities at the end of the business year as published by Heubeck AG, Mercer Deutschland GmbH, TowersWatson, and AON Hewitt are used to determine the relevant discount rates. These values, which in turn are determined on the basis of market yields on senior fi xed-coupon corporate bonds, are used to calculate a discount rate that refl ects the anticipated benefi t payments.

NOTES

There has been a signifi cant decline in the number of high-quality corporate bonds in the long maturity range. In order to address this issue, the criteria used to select the high-quality, fi xed-coupon, AA-rated corporate bonds were updated eff ective 31 December 2012 to include more bonds and to enable continued reliable estimates of discount rates. The present value of the benefi t commitments would have been €20.2 million higher if the discount rate had been 0.6% lower. This change would not have an eff ect on pension provisions or on the consolidated separate income statement.

The projected increases in wages and salaries comprises expected future pay increases, which are estimated each year on the basis of infl ation 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 defi ned benefi t 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 diff erences between the actual and expected return on plan assets. The net value of the pension provisions breaks down as follows:

€ thousand		31 Dec 2011
Present value of benefi t commitments fi nanced by provisions		101,820
Present value of benefit commitments fi nanced through pension funds	44,751	39,917
Present value of benefit commitments (gross)		141,737
Fair value of plan assets		–27,020
Present value of benefit commitments (net)		114,717
Actuarial gains (losses) not recognised in the statement of fi nancial position		–32,439
Carrying amount at 31 December	87,557	82,278

The pension provisions, which amounted to €86,263 thousand at the end of the reporting period (previous year: €80,927 thousand), are primarily attributable to KRONES AG.

The composition of costs arising from pension obligations, which amounted to €9,995 thousand (previous year: €10,301 thousand), the reconciliation of the present value of defi ned benefi t obligations, which amounted to €169,284 thousand (previous year: €141,737 thousand), and the plan assets of €28,229 thousand (previous year: €27,020 thousand) breaks down as follows:

€ thousand	31 Dec 2012	31 Dec 2011
Current service cost	3,506	3,828
Interest expense	6,102	5,691
Expected return on plan assets	–862	–671
Recognised gains and losses	1,249	1,453
Costs arising from pension obligations	9,995	10,301

€ thousand	31 Dec 2012	31 Dec 2011
Present value of benefi t commitments at 1 January	141,737	136,676
Consolidated addition	0	0
Current service cost	3,506	3,828
Interest expense	6,102	5,691
Actuarial losses (+)/gains (–) not recognised in the statement of fi nancial position		–691
Benefi ts paid	–4,289	–3,864
Currency diff erences	–161	97
Present value of benefit commitments at 31 December	169,284	141,737

Costs arising from pension commitments are recognised under personnel expenses.

The actual return on plan assets was 8.47%. The plan assets consist of securities. No payments are expected to be made into the plan in 2012. The expected return of between 2.5% and 3.6% is estimated on the basis of the fund administrator's future interest rate developments. In 2012, a total of €46,345 thousand (previous year: €43,326 thousand) was spent on the employer contribution to defi ned contribution plans (contributions to pensions insurance).

Reconciliation of the assets (€ thousand)	31 Dec 2012	31 Dec 2011
Plan assets at start of year	27,020	21,589
Expected return	862	671
Employer contributions	2,354	6,388
Benefi ts paid	–1,997	–2,005
Net unrecognised gains on assets	41	338
Currency diff erences	–51	39
Plan assets at end of year	28,229	27,020

€ thousand	31 Dec 2012	31 Dec 2011	31 Dec 2010	31 Dec 2009	31 Dec 2008
Present value of benefi t commitments	169,284	141,737	136,676	111,843	98,936
Fair value of plan assets	28,229	27,020	21,589	19,170	18,007
Deficit of plan assets	–16,522	–12,897	–17,216	–13,580	–14,470
Adjustments (actuarial assumptions
vs. actual development)	4.9%	1.2%	3.0%	1.9%	0.9%

14 Provisions for taxes and other provisions

Of the other provisions amounting to €178,233 thousand (previous year: €218,997 thousand), €142,696 thousand (previous year: €186,747 thousand) are due within one year. These other provisions apply to the following items:

€ thousand	1 Jan 2012	Use	Reversal	Addition		Currency 31 Dec 2012	Due within
					diff erences		1 year
Tax liabilities	11,120	8,375	1,277	14,544	–184	15,828	14,030
Personnel obligations	19,976	855	76	4,831	–13	23,863	522
Administrative expenses	2,217	730	638	1,078	–174	1,753	827
Other remaining provisions	185,684	75,361	24,021	51,900	–1,413	136,789	127,317
Total	218,997	85,321	26,012	72,353	–1,784	178,233	142,696

The provisions for personnel obligations are primarily for non-current obligations relating to early retirement (€16,592 thousand; previous year: €13,286 thousand). The other remaining provisions primarily consist of warranties and anticipated losses. Estimates are based on customary empirical values. The non-current provisions have been discounted using rates between 3.7% and 4.8%.

15 Liabilities

€ thousand	Residual term of up to 12 months	Residual term of 1 to 5 years	Residual term of over 5 years	Total at 31 Dec 2012
Liabilities to banks	0	0	0	0
Advances received	497,163	0	0	497,163
Trade payables	197,849	6,829	0	204,678
Other fi nancial liabilities	14,879	2,177	0	17,056
Other liabilities	225,238	1,811	0	227,049
Total	935,129	10,817	0	945,946

€ thousand	Residual term of up to 12 months	Residual term of 1 to 5 years	Residual term of over 5 years	Total at 31 Dec 2011
Liabilities to banks	0	0	0	0
Advances received	443,452	0	0	443,452
Trade payables	201,326	0	0	201,326
Other fi nancial liabilities	34,723	7,034	0	41,757
Other liabilities	254,265	8,189	0	262,454
Total	943,766	15,223	0	958,989

The other fi nancial liabilities are obligations on bills. Under IAS 39, these represent possible liabilities from bills sold and are recognised as trade receivables amounting to €16,317 thousand (previous year: €40,712 thousand).

The other liabilities consist of deferred income (€7,484 thousand; previous year: €2,439 thousand) and other remaining liabilities (€219,565 thousand; previous year: €260,015 thousand).

The other remaining liabilities break down as follows:

€ thousand	Residual term of up to 12 months	Residual term of 1 to 5 years	Residual term of over 5 years	Total at 31 Dec 2012
Tax liabilities	15,670	331		16,001
Social security liabilities	7,645			7,645
Payroll liabilities	18,770			18,770
Debtors with credit balances	10,880			10,880
Finance leases	413	55		468
Accruals	149,341			149,341
Other	15,035	1,425		16,460
Total	217,754	1,811		219,565

Accruals, which amounted to €149,341 thousand (previous year: €169,029 thousand), 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 fl exible working hours, accrued vacation, and performance bonuses.

€ thousand	Residual	Residual	Residual	Total at
	term of up to	term of 1 to	term of over	31 Dec 2011
	12 months	5 years	5 years
Tax liabilities	19,904	4,816		24,720
Social security liabilities	7,989			7,989
Payroll liabilities	18,720			18,720
Debtors with credit balances	12,203			12,203
Finance leases	501	1,293		1,794
Accruals	169,029			169,029
Other	23,480	2,080		25,560
Total	251,826	8,189		260,015

The liabilities from fi nance leases are recognised under other liabilities without consideration of future interest expense. The residual terms of the individual leases are between 2 and 4 years. Some of the leases contain options for extension or purchase.

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

€ thousand	31 Dec 2012	31 Dec 2011
Future minimum lease payments
Up to 1 year	612	904
1 to 5 years	807	1.410
	1,419	2,314
Interest portion of future minimum lease payments
Up to 1 year	24	403
1 to 5 years	18	117
	42	520
Present value of future minimum lease payments
Up to 1 year	588	501
1 to 5 years	789	1.293
	1,377	1,794

16 Contingent liabilities

No provisions have been recognised for the contingent liabilities because the risk of their use is deemed to be low.

There were no contingent liabilities in the reporting period or in the previous year.

17 Other fi nancial liabilities

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

€ thousand	31 Dec 2012	31 Dec 2011
Future minimum lease payments
Up to 1 year	14,732	14,253
1 to 5 years	13,067	14,364
	27,799	28,617
Future maintenance
Up to 1 year	10,890	10,338
1 to 5 years	6,091	9,417
	16,981	19,755

Payments amounting to €20,883 thousand (previous year: €18,211 thousand) were made under these rental and lease agreements in 2012.

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.

18 Derivative fi nancial instruments

The derivative fi nancial instruments of the KRONES Group, with a fair value of €1,926 thousand (previous year: –€12,230 thousand) of which €2,069 thousand are short-term (previous year: –€11,396 thousand), substantially cover the currency risks relating to the US dollar, the Australian dollar, the Canadian dollar, the British pound, and the euro. The fair value includes the difference between the forward rate received from the relevant commercial bank and the rate at the end of the reporting period as well as appropriate premiums or discounts for the expected price development through maturity. These fi nancial instruments are accounted for using the settlement date.

The derivative fi nancial instruments are essentially composed of forward exchange contracts at a secured volume of €221.3 million (previous year: €256.9 million), of which €219.8 million are short-term (previous year: €241.7 million). This volume includes a nominal volume of €74.6 million (previous year: €66.2 million) for short-term cash fl ow hedges that is measured at a fair value of €74.0 million (previous year: €64.5 million). The risk of default relating to derivative fi nancial instruments is limited to the balance of the positive fair values in the event of a contracting party's default. The cash fl ow hedges presented are eff ective.

The net gain from these fi nancial instruments was €108 thousand in the reporting period (previous year: net loss of €442 thousand).

19 Revenue

The revenue of the KRONES Group, which amounts to €2,664,194 thousand (previous year: €2,480,308 thousand), consists of deliveries and services billed to customers less reductions. In the segment reporting, sales revenue is presented in detail, divided by business area and geographic market. In 2011, revenue of €1,440,378 thousand resulted from construction contracts (previous year: €1,225,769 thousand). Costs and gains (less any reported losses) for contracts in progress came to €878,560 thousand (previous year: €789,922 thousand). Advances received amounted to €88,837 thousand (previous year: €65,196 thousand).

20 Other own work capitalised

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

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

21 Other operating income

Apart from the income from the reversal of provisions (€19,087 thousand; previous year: €25,195 thousand), gains from disposals of non-current assets(€644 thousand; previous year: €1,560 thousand), and the reversal of impairments (€4,631 thousand; previous year: €8,889 thousand), which are not related to the period, the other operating income, which amounts to €104,353 thousand (previous year: €98,743 thousand), consists substantially of currency translation gains of €35,069 thousand (previous year: €31,315 thousand). This is compared with the recognition of impairment losses of €3,291 thousand (previous year: €5,637 thousand) and currency translation losses of €47,355 thousand (previous year: €33,412 thousand) under other operating expenses.

22 Goods and services purchased

The expenditure for goods and services purchased comprises expenses for materials and supplies and for goods purchased amounting to €1,086,061 thousand (previous year: €1,035,675 thousand) and expenses for services purchased amounting to €239,244 thousand (previous year: €236,101 thousand).

23 Personnel expenses

Within the KRONES Group, 11,487 people (previous year: 10,799) including trainees (604; previous year: 466) were employed on average for the year. The workforce of the KRONES Group is composed as follows (on average for the year):

	2012	2011
White-collar employees exempt from collective agreements	2,721	2,525
Employees covered by collective agreements	8,766	8,274
Total	11,487	10,799

24 Other operating expenses

Apart from the €423 thousand in losses from disposals of non-current assets (previous year: €222 thousand), which are not related to the period, the other operating expenses include additions to impairments on receivables (€3,291 thousand; previous year: €5,637 thousand), other taxes (€4,210 thousand; previous year: €3,793 thousand), freight costs (€98,928 thousand; previous year: €84,559 thousand), and rent and cleaning costs (€26,127 thousand; previous year: €27,690 thousand).

25 Financial income

The fi nancial income of €5,622 thousand (previous year: €4,044 thousand) breaks down as follows:

€ thousand	31 Dec 2012	31 Dec 2011
Income from other securities and loans classifi ed as non-current fi nancial assets	28	10
Other interest and similar income	6,925	11,035
Interest and similar expenses	–3,468	–8,423
Interest income	3,457	2,612
Write-downs on non-current fi nancial assets	0	0
Investment income	2,137	1,422
Financial income	5,622	4,044

26 Income tax

Income tax amounted to –€30,885 thousand in 2012 (previous year: –€30,936 thousand). More information is presented under Note 7, »Income tax« (pages 140–142).

27 Earnings per share

Under IAS 33 »Earnings per share«, basic earnings per share are calculated by dividing consolidated net income – less profi t or loss shares of non-controlling interests – by the weighted average number of ordinary shares in circulation, as follows:

	2012	2011
Consolidated net income less profi t or loss shares
of non-controlling interests € thousand	67,028	43,654
Weighted average number of ordinary shares in circulation	Shares 30,167,651 30,167,651
Earnings per share €	2.22	1.45

As in the previous year, diluted earnings per share are equal to undiluted earnings per share.

Group audit fees

Expenses of €448 thousand were incurred in the fi nancial year 2012 for the KRONES Group audit and the audit of the parent company. In addition, for the parent company, expenses totalling €61 thousand were incurred for tax consultancy services. No expenses for other services were incurred. The expense for the audit of the German subsidiaries was €36 thousand.

Events after the reporting period

No events of material importance occurred aft er the reporting period.

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 €21,102 thousand in 2012 (previous year: €19,130 thousand). Trade and other payment transactions resulted in liabilities of €8,230 thousand (previous year: liabilities of €10,530 thousand). Contingent liabilities of €2,760 thousand (previous year: €4,147 thousand) result from guarantees.

Compensation of the Executive Board and the Supervisory Board

The compensation report summarises the principles used to determine the compensation of the Executive Board of KRONES AG and explains the amount and the structure of such income. The principles and the amount of Supervisory Board compensation are also set out in the report.

The compensation report is on pages 110 to 112 of the 2012 Annual Report.

Other disclosures

The US company of the KRONES Group, KRONES INC. in Franklin/Wisconsin (USA), and KRONES AG, Neutraubling (Germany), have settled the legal disputes that have been ongoing in the US since October 2008. Only one claim for legal fees remains pending. The proceedings concerned relate to claims for damages asserted by several American fi nancial service providers, a group of hedge funds and a liquidator, and most recently investigations by the district attorney in Pennsylvania. The proceedings related to the fi nancial scandal involving the bankruptcy of the US company Le-Nature's.

Against the background of possible risks arising from the proceedings in the US, which might otherwise have dragged on for years, KRONES decided to bring an end to the matter by concluding settlements with all major plaintiff s, and reaching an agreement with the district attorney as well, at the same time.

The agreements involve settlement payments amounting to about USD 110 million to the various plaintiff s, plus a payment by KRONES INC. to the US Treasury amounting to USD 15 million relating to a discontinuation of the investigation. Aft er factoring in the contribution from the relevant insurances, the total net impact on KRONES' pre-tax earnings amounted to €36.7 million in 2011 and €37.8 million in 2012.

The settlement payments were made in full in the fi nancial year 2012.

Corporate governance

Shareholders can view the declaration of the Executive Board and the Supervisory Board pursuant to § 161 of the German Stock Corporation Act [AktG] concerning the Corporate Governance Code as amended on 15 May 2012 at KRONES AG's website. The exceptions are also listed there.

Risk report

The risk report is part of the management report and is on pages 94 to 101.

Standards and interpretations not applied early

The following standards, interpretations, and amendments to existing standards and interpretations have been issued by the IASB and adopted by the European Union; however, their application is not yet mandatory (applicable for fi nancial years beginning on or aft er 1 July 2012) and KRONES AG did not apply them early:

IAS 1	»Presentation of other comprehensive income«
IAS 19	»Employee benefi ts«
IAS 27	»Separate fi nancial statements«
IAS 32	»Off setting fi nancial assets and fi nancial liabilities«
IFRS 7	»Disclosures – Off setting fi nancial assets and fi nancial liabilities«
	IFRS 10 »Consolidated fi nancial statements«
	IFRS 12 »Disclosure of interests in other entities«
	IFRS 13 »Fair value measurement«

The changes to IAS 19 will have the following material eff ects: Because KRONES AG currently uses the »corridor« method, the amendment – when applied to the fi gures at 31 December 2012 – will result in an increase of approximately €53 million in the provision for pensions. Equity within other comprehensive income will be reduced by the same amount. The separate income statement will remain free of eff ects resulting from actuarial gains and losses (e.g. due to interest rate fl uctuations).

The remaining new standards and interpretations are not expected to result in material changes for the consolidated fi nancial statements of KRONES AG in the period in which they are fi rst applied.

The following standards and interpretations, the application of which is not yet mandatory, are not expected to be relevant for the consolidated fi nancial statements of KRONES AG:

IAS 28	»Investments in associates and joint ventures«
	IFRS 11 »Joint arrangements«
	IFRIC 20 »Stripping costs in the production phase of a surface mine«

Amendments due to a new standard or a new interpretation and amendments to existing standards and interpretations (applicable for the fi rst time for fi nancial years beginning on or aft er 1 July 2011):

IAS 12	»Recovery of underlying assets«
IFRS 1	»Severe hyperinfl ation and replacement of the fi xed transition date for fi rst-time application of IFRSs«
IFRS 7	»Disclosures about transfers of fi nancial assets«

These changes are not applicable to KRONES or resulted in no substantial eff ects in the reporting period.

Name and location of the company	Share in capital
	held by KRONES AG
	%*
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	100.00
S.A. KRONES N.V., Louvain-la-Neuve, Belgium	100.00
MAINTEC Service eood, Sofi a, Bulgaria	100.00
KRONES Nordic ApS, Holte, Denmark	100.00
KRONES S.A.R.L., Lyon, France	100.00
KRONES UK Ltd., Bolton, UK	100.00
KRONES S.R.L., Garda (VR), Italy	100.00
KOSME S.R.L., Roverbella, Italy	100.00
KRONES Nederland B.V., Bodegraven, Netherlands	100.00
KOSME Gesellschaft mbH, Sollenau, Austria	100.00
MAINTEC Service Ges.m.b.H., Dorf an der Pram, 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., Bukarest, 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
KONPLAN S.R.O., Pilsen, Czech Republic	100.00
KRONES Makina Sanayi ve Tikaret Ltd. Sirketi, Istanbul, Turkey	100.00
KRONES Ukraine LLC, Kiev, Ukraine	100.00
KRONES Angola – Representacoes, Comercio e Industria, Lda., Luanda, Angola	100.00
KRONES Surlatina S. A., Buenos Aires, Argentina	100.00
KRONES do Brazil Ltda., São Paulo, Brasil	100.00
KRONES S. A., São Paulo, Brasil	100.00
KRONES Machinery (Taicang) Co. Ltd., Taicang, China	100.00
KRONES Trading (Taicang) Co. Ltd., Taicang, China	100.00
KRONES Asia Ltd., Hong Kong, China	100.00
KRONES India Pvt. Ltd., Bangalore, India	100.00
PT. KRONES Machinery Indonesia, Jakarta, Indonesia	100.00
KRONES Japan Co. Ltd., Tokyo, Japan	100.00
KRONES Machinery Co. Ltd., Brampton, Ontario, Canada	100.00
KRONES LCS Center East Africa Limited, Nairobi, Kenya	100.00
KRONES Andina Ltda., Bogotá, Colombia	100.00
KRONES Korea Ltd., Seoul, Korea	100.00
KRONES Mex S. A. DE C. V., Mexico D. F., Mexico	100.00
KRONES LCS Center West Africa Limited, Lagos, Nigeria	100.00
KRONES Southern Africa (Prop.) Ltd., Johannesburg, South Africa	100.00
KRONES (Thailand) Co. Ltd., Bangkok, Thailand	100.00
KRONES, Inc., Franklin, Wisconsin, USA	100.00
Maquinarias KRONES de Venezuela S. A., Caracas, Venezuela	100.00

* Direct and indirect shareholdings.

Following fulfi lment of the requirements for application of the German Codetermination Act [Mitbestimmungsgesetz] of 1976 in 1987, the Supervisory Board was extended from six to twelve members. Pursuant to § 8 (1) of the articles of association, six members are elected by 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.

Supervisory Board Executive Board

Ernst Baumann Chairman of the Supervisory Board * since 3 April 2012 ZF FRIEDRICHSHAFEN AG

• Werner Schrödl**
• Chairman of the Central Works Council Deputy Chairman of the Supervisory Board * since 1 January 2012 VERWALTUNGSRAT DER BAYERISCHEN BETRIEBSKRANKENKASSEN

Klaus Gerlach** Senior Vice President Material Management since 13 June 2012

Dr. Klaus Heimann** Director of the Youth, Training and Qualifi cation Policy Division of IG METALL

Dr. Jochen Klein

Managing director of I-Invest GmbH * DÖHLER GMBH * HOYER GMBH

* since 01.10.2012 CONSORTIUM GASTRONOMIE GMBH Norman Kronseder Farmer and forester * BAYERISCHE FUTTERSAATBAU GMBH

Philipp Graf von und zu Lerchenfeld Member of the Bavarian Landtag, Dipl.-Ing. agr., auditor and tax consultant

Dr. Alexander Nerz Attorney

Johann Robold** Member of the Works Council

Anton Schindlbeck** Senior Vice President Sales LCS until 13 June 2012

Petra Schadeberg-Herrmann Managing partner at KROMBACHER FINANCE GMBH, SCHAWEI GMBH, DIVERSUM HOLDING GMBH & CO. KG

Jürgen Scholz** 1st authorised representative and treasurer of the IG METALL administrative offi ce in Regensburg * INFINEON TECHNOLOGIES AG

Josef Weitzer** Deputy Chairman of the Works Council * SPARKASSE REGENSBURG

* 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.

Volker Kronseder Chairman Human Resources and Corporate Communications

Christoph Klenk Finance and Information Management

Rainulf Diepold Sales and Marketing

Werner Frischholz Operations and Service

Thomas Ricker Technology, Engineering, Research and Development

¹⁵⁹ Proposal for the appropriation of retained earnings of KRONES AG

KRONES AG had retained earnings of €74,039,625.73 at 31 December 2012.

We propose to the annual shareholders' meeting on 19 June 2013 that this amount be used as follows:

Proposal for the appropriation of retained earnings	€
Dividend of €0.75 per share	22,625,738.25
Amount brought forward to new account	51,413,887.48

Neutraubling, 28 March 2013 KRONES AG

The Executive Board

Volker Kronseder (Chairman)

Werner Frischholz Thomas Ricker

Christoph Klenk Rainulf Diepold

We have audited the consolidated fi nancial statements prepared by KRONES Aktiengesellschaft , Neutraubling, comprising the separate income statement, the statement of comprehensive income, the statement of fi nancial position, the statement of cash fl ows, the statement of changes in equity and the notes to the consolidated fi nancial statements, together with the group management report for the fi nancial year from 1 January to 31 December 2012. The preparation of the consolidated fi nancial statements and the group management report in accordance with IFRS 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 fi nancial statements and on the group management report based on our audit.

We conducted our audit of the consolidated fi nancial statements in accordance with § 317 HGB and German generally accepted standards for the audit of fi nancial statements promulgated by the Institut der Wirtschaft sprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that misstatements materially aff ecting the presentation of the net assets, fi nancial position and results of operations in the consolidated fi nancial statements in accordance with the applicable fi nancial 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 eff ectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated fi nancial 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 fi nancial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and signifi cant estimates made by management, as well as evaluating the overall presentation of the consolidated fi nancial 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 fi ndings of our audit, the consolidated fi nancial statements comply with IFRS 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, fi nancial position and results of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated fi nancial 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, 28 March 2013

KPMG Bayerische Treuhandgesellschaft Aktiengesellschaft Wirtschaft sprüfungsgesellschaft Steuerberatungsgesellschaft

Braun Herr Wirtschaftsprüfer Wirtschaftsprüfer

(German Public Auditor) (German Public Auditor)

162 Commercial glossary

Cash fl ow	All inflows and outfl ows of cash and cash equivalents during a period.
Corporate governance	Framework for responsible corporate management and supervision that is oriented toward sustainability.
DAX	Deutscher Aktienindex (DAX). Index containing the 30 biggest German companies (based on market capital isation and trading volume).
Deferred tax items	Temporary differences between the taxes calculated on the results reported on tax statements and those calculated on the results recognised in the fi nancial statements under IFRSs. The purpose is to show the tax expense in relation to the result under IFRSs.
EBIT	Earnings before interest and taxes.
EBITDA	Earnings before interest, taxes, depreciation and amortisation.
EBT	Earnings before taxes.
EBT margin	Ratio of earnings before taxes to sales. (Return on sales).
Equity	Funds made available to the company by the owners by way of contribution and/or investment plus retained earnings.
Fixed assets	Subset of non-current assets. In the context of this report, fixed assets include property, plant and equipment, intangible assets, and non-current fi nancial assets.
Free cash fl ow	Measure of financial performance calculated as the cash fl ow from operating activities minus cash fl ow from investing activities. It is the cash available to pay dividends, reduce debt, or to be retained.
Free fl oat	Portion of the total number of shares outstanding that is available to the public for trading (i.e. not held by big investors).
IFRSs	International Financial Reporting Standards. Accounting standards issued by the International Accounting Standards Board (IASB) that are harmonised and applied internationally.
Market capitalisation	The value of a company based on the market price of issued and outstanding ordinary shares. Calculated by multiplying the share price by the number of shares.
MDAX	Index that contains the 50 biggest German and non-German companies (based on market capitalisation and trading volume) in the traditional sectors after those included in the DAX.
Net cash and equivalents	Cash and highly liquid securities under current assets less liabilities to banks.
Return on equity before taxes	Ratio of earnings before taxes to average equity.
ROCE (assets side)	Ratio of EBIT to the average sum of fi xed assets and working capital.
ROCE (liabilities side)	Ratio of EBIT to average capital employed (total assets less interest-free liabilities and interest-free other provisions).
Statement of cash fl ows	Statement of inflows and outfl ows of cash that shows the sources and uses of funds within the fi nancial year.
Total debt	Combined term for the provisions, liabilities, and deferred income stated on the liabilities side of the balance sheet.
Total operating performance	Referred to as »total operating revenue« in previous reports, this figure is the sum of »sales revenue« and »changes in inventories of fi nished goods and work in progress«.
Working capital	Calculated as follows: (trade receivables + inventories + prepayments) – (trade payables + advances received)
XETRA trading system	Deutsche Börse AG's electronic stock market trading system.

Technical glossary

Aseptic beverage fi lling	Germ-free filling of beverages at ambient temperature.
Bloc solutions	Two or more individual machines – such as a stretch blow-moulder and a fi ller – are directly connected. The ErgoBloc L for the wet section of the line comprises a stretch blow-moulder, a labeller, and a fi ller.
Brewhouse	In the brewhouse, the raw materials malt, hops, and water are processed in several stages to produce beer.
Contipure	Module of the Contiform stretch blow-moulder that sterilises preforms before they are formed into PET containers. The heated preforms are treated with gaseous hydrogen peroxide (H₂O₂) in a sealed chamber.
Contiroll	KRONES labeller that applies wrap-around labels to glass, plastic, and metal containers.
EHEDG	The European Hygienic Engineering & Design Group (EHEDG) is a consortium of experts comprising machi nery and component manufacturers, specialists from the food industry, research institutions, and public health authorities. The principal goal of the EHEDG is to promote safe food production by helping to improve hygienic engineering and design in all aspects of food production.
Filter cellar	After storage in special tanks, beer is fi ltered to remove solids and components that cause the beer to appear cloudy. This process takes place in fi ltration equipment located in the brewery's fi lter cellar.
HygienicDesign	Design for machines and lines that is optimised for hygiene and easy cleaning.
Inspector	Machine that checks empty or full bottles and other containers for damage or contamination.
Intralogistics	The internal fl ow of materials and goods within a company, including warehouse, order-picking, and conveyance systems.
Multireel	Machine that can hold multiple label reels and automatically feeds them into a labeller.
PET	Polyethylene terephthalate, a thermoplastic material from the polyester family used for producing beverage bottles.
Preforms	Blanks made of PET plastic, similar in shape and size to test tubes. Preforms are made into PET bottles in a stretch blow-moulder.
Small cavity	Blow mould for PET containers with a volume of up to 0.75 litres.
Stretch blow-moulder	A stretch blow-moulder produces containers made of PET plastic (polyethylene terephthalate). The PET pre forms are heated and then fed into a blow mould where compressed air is used to blow and mould them into fi nished containers.
Stretching	Containers made of PET plastic are produced on a stretch blow-moulder. Stretching is part of the stretch blow moulding process. Once a preheated preform is fed in the blow mould and the mould is closed, a stretching rod descends into the mouth of the preform from above, mechanically stretching the preform. At the same time, compressed air is blown into the stretched preform, pressing the PET material against the walls of the blow mould. As a result of this process, the container obtains the desired form.

This English language report is a translation of the original German KRONES Konzern Geschäftsbericht 2012. In case of discrepancies the German text shall prevail.

We would be happy to mail you a copy of the original German version of this Annual Report on request. You can also fi nd it in the Investor Relations section at krones.com.

The production of and the paper used for the KRONES Group's 2012 Annual Report have been certifi ed in accordance with the criteria of the Forest Stewardship Council (FSC). The FSC prescribes strict standards for forest management, thus helping to prevent uncontrolled deforestation, human rights violations, and environmental damage. Because products bearing the FSC label are handled by various enterprises along the trading and processing chain, the companies that process the paper, such as printers, are also certifi ed under FSC rules.

Published by		KRONES AG
		Böhmerwaldstrasse 5
		93073 Neutraubling
		Germany
	Project lead	Roland Pokorny,
		Vice President
		Corporate Communications
	Design	Büro Benseler
	Text	KRONES AG
		InvestorPress GmbH
	Photography	KRONES AG,
		Juliane Zitzlsperger
		Printing & litho Mediahaus Biering GmbH
	Paper	PhoeniXmotion, Gmund Colors
	Circulation	2,500 German
		1,800 English

At a glance: revenues, earnings, employees, dividends

of retained earnings

		2012	2011	2010	2009	2008
Revenue
Sales revenue	€ million	2,664	2,480	2,173	1,865	2,381
Germany	€ million	224	253	234	191	300
Outside Germany	€ million	2,440	2,227	1,939	1,674	2,081
Export share	%	92	90	89	90	87
Earnings
Earnings before taxes	€ million	98	75	71	–39	156
Net income	€ million	67	44	51	–34	107
Earnings per share	€	2.22	1.45	1.68	–1.13	3.39
Assets and capital structure
Non-current assets	€ million	625	597	569	542	534
of which fixed assets	€ million	587	555	519	496	482
Current assets	€ million	1,445	1,443	1,317	1,248	1,291
of which cash and equivalents	€ million	133	125	147	136	108
Equity	€ million	836	785	759	696	790
Total debt	€ million	1,234	1,255	1,127	1,094	1,035
Non-current liabilities	€ million	155	134	125	125	144
Current liabilities	€ million	1,079	1,121	1,002	970	891
Total assets	€ million	2,070	2,040	1,886	1,790	1,825
Cash flow/capital expenditure
Free cash flow € million		31	–7	3	83	78
Capital expenditure for PP&E
and intangible assets	€ million	111	106	82	88	112
Depreciation, amortisation,
and write-downs	€ million	77	70	61	60	51
Net cash position (cash and cash
equivalents less debt)	€ million	133	125	147	136	108
Profitability ratios
ebt margin	%	3.7	3.0	3.3	–2.1	6.6
Return on equity before taxes	%	12.1	9.7	9.7	–5.3	20.8
roc e (liabilities side)	%	9.9	7.9	8.1	–3.5	19.1
roc e (assets side)	%	7.7	6.2	6.5	–2.8	13.2
Employees (at 31 December)		11,963	11,389	10,575	10,238	10,333
Germany		9,076	8,887	8,280	8,165	8,286
Outside Germany		2,887	2,502	2,295	2,073	2,047
Dividend
Dividend per share	€	0.75*	0.60	0.40	0.00	0.60

Key figures for the KRONES Group 2008–2012

* as per proposal for appropriation of retained earnings

KRONES Group segments and product divisions

Machines and lines for product fi lling and decoration

• Product treatment technology
• Systems engineering
• Labelling technology
• Inspection technology
• Filling technology
• Cleaning technology
• Plastics technology
• Packing and palletising technology
• Conveyor technology

Machines and lines for beverage production/process technology

• Brewhouse and fi ltration technology
• Information technology
• Internal logistics
• Materials fl ow technology

Machines and lines for the low output range (KOSME)

• Labelling technology
• Filling technology
• Plastics technology
• Packing and palletising technology
• Conveyor technology

Contact

Financial calendar

24 April 2013	Annual report for 2012
	Interim report for the period ended 31 March
	Financial press conference
19 June 2013	Annual shareholders' meeting
25 July 2013	Interim report for the period ended 30 June
24 October 2013	Interim report for the period ended 30 September