KRONES AG — Interim / Quarterly Report 2005

Aug 5, 2005

krones ag Investor Relations Böhmerwaldstrasse 5 93073 Neutraubling Germany

Phone +49(0)94 01-7032 58 Fax +49(0)94 01-703496 E-Mail investor-relations@krones.com Internet www.krones.com

Dear shareholders and friends of

krones,

The krones group achieved continued growth in the first half of 2005 as planned. New orders were up 6.8% on the same period of the previous year, to € 837.9 m. Sales revenues were also up 6.5%, to € 820.6 m, and orders on hand at 30th June totalled € 666.3 m, for a 5.9% increase on the previous year's figure. We expect additional momentum to come in September when drinktec, the world's premiere trade fair for the beverage industry, takes place in Munich. drinktec is held only once every four years.

Group earnings after taxes in the first six months of the year totalled € 36.5 m, outperforming the previous year by 2.8%. Results from ordinary business activities were down 9.8% to € 53.5 m due to continued heavy price pressures and losses from a large-scale order in process technology. On the other hand, we achieved an 8.0% return on sales in our core area, systems engineering, with earnings before taxes of € 55.9 m.

By restructuring our process technology segment and integrating the companies formerly operating as steinecker gmbh and syskron gmbh into krones ag, we are laying the groundwork for more streamlined, more efficient processes and for minimising risk. The plant agreement we reached with our employees did not yield the earnings results we had hoped for in the first months. However, we are confident that this will improve once the launch stage is complete. Although we have not fully achieved all of our goals, the current figures confirm that our strategy is the right one and that we should continue to implement it systematically. As we have done for the past several years, we will make 2005 another successful year for our shareholders. And the name krones will continue to stand for success.

Hans-Jürgen Thaus

Volker KronsederChairman of the Executive Board

Deputy Chairman of the Executive Board

	First half 2005	First half 2004	Chan ge
Sale in € s m	820 .6	770 .4	% 6.5
afte Earn ings r tax in € es m	36.5	35.5	2.8 %
ord ulat New ive ers, cum
inclu ding life cycl rvice in € e se m	837 .9	784 .9	6.8 %
Ord n ha nd a s of 3oth June ers o
inclu ding life cycl rvice in € e se m	666 .3	629 .2	% 5.9
ital ndit Cap in € expe ures m	29.2	13.5	116 .3 %
loye s of 30th Emp June es a
ldw ide Wor	8,95 5	8,72 4	% 2.6
Ger man y	7,33 2	7,21 4	1.6 %
sha re * Earn ings € per	3.47	3.37	2.8 %
Mio € ebit	53.3	59.5	-10 .4 %
Cash flow Mio €	59.3	56.3	% 5.3

* Diluted and basic

krones maintains course for growth

In the first six months of the fiscal year, we achieved the targets we had set in terms of new orders and sales, with new orders up 6.8% and sales up 6.5%. However, at 2.8%, the increase in earnings did not meet our expectations. The reason for this lies in losses from a large-scale order in our process technology segment as well as continued heavy price pressures caused by new consolidation among customers and competitors, which has a negative impact on profit margins.

In order to continue to be successful despite the cooling global economy, higher steel prices, and heavy price pressures, we reached an agreement with krones group employees at the start of the year under which our employees agree to work longer, more flexible hours to allow us to produce less expensively. Targeted insourcing measures and increased in-house production volume have not yet yielded the earnings results expected for the first half of 2005.

We expect to achieve greater efficiency through the integration of our subsidiaries steinecker and syskron into krones ag. This step was made official when the annual shareholders' meeting gave its approval, effective retroactively to 1st January 2005. This move is in response to rising customer demands for integrated solutions, consistent production processes, and centralised project management. Our Freising site will continue to operate, although steinecker and syskron employees will become krones ag employees.

The companies' integration will create centralised management for sales, project management, and customer service. In future, we will also conduct research and development under a single »roof«. We expect this unified presence to also yield more streamlined business processes, optimised production processes, greater flexibility in our production capacities, and considerable cost savings, all of which will help us further improve our competitiveness.

Continued heavy price pressures and consolidation among some of our competitors curbed profits.

While sales were up sharply by more than € 50 m in the first half of 2005, profits growth was less than proportionate.

Global economy continues to grow

The global economy is still growing strong. According to forecasts made by leading economic research institutions since the end of the second quarter, the global economy will grow by four percent in 2005, at a pace only slightly slower than 2004. Once again, the us and China will drive this growth. The picture for the euro area countries also remained unchanged, with growth unlikely to exceed 1.3% due to a continued lack of domestic demand. According to forecasts, German economic growth will remain well below one percent of gdp.

Although the business climate in Germany improved somewhat at the end of the second quarter, most of the economy's momentum is still coming from exports. And Germany's machinery and industrial equipment manufacturers, which are heavily oriented toward international business, felt a slight decline in foreign orders for the first time in two years. On the whole, improved business sentiment due to the euro's weakening against the dollar and the upcoming general elections this fall do not yet indicate an economic upswing.

Business conditions and expectations for manufacturing in Germany

Assessment of business conditions Business expectations Source: ifo Institute for Economic Researchforschung

krones group sales and earnings as of 30th June, in € m

New orders up 6.8 percent

New orders in the first half totalled € 837.9 m, outpacing the first six months of the previous year (€ 784.9 m) by 6.8%.

Orders on hand up 5.9 percent

Orders on hand for the krones group amounted to € 666.3 m, as of the reporting date of 30t^h June 2005, 5.9% above the 30th June 2004 figure (€ 629.2 m). This corresponds to a capacity utilisation of around five and a half months.

krones group maintains strong orders backlog.

Sales up 6.5 percent

Under ias/ifrs, krones group sales in the first half of 2005 were up 6.5% on the same period of the previous year, to € 820.6 m (H1 2004: € 770.4 m). At € 416.1 m, sales revenues for the second quarter exceeded the comparative value for the previous year (€ 387.0 m) by 7.5% and were also considerably higher than the first quarter's € 404.5 m.

»Systems engineering« – our strongest segment, accounting for around 85% of total sales – increased first-half sales by 1.9% over the same period of the previous year, to € 694.7 m. Return on sales before taxes was 8.0%.

Our »process technology« segment generated sales of € 93.1 m. With the partial completion of a large-scale order, this makes for a 74.7% increase over the first half of 2004 (€ 53.3 m). However, the return on sales before taxes fell to –3.2% due to losses from the same order. Our »kosme« segment generated sales of € 32.8 m, underperforming the previous year (€ 35.6 m) by 7.9%, with a 1.8% return on sales before taxes.

krones group orders received as of 30th June, in € m

krones group orders on hand as of 30th June, in € m

629. 2
	666. 3

606. 4
663. 9
	784. 9
	837. 9

krones group sales as of 30th June, in € m

In terms of the source of funds, we maintained a favourable ratio of debt to equity. The equity ratio rose to 47.6% (31st December 2004: 47.3%), which indicates a very sound financial structure. At € 318.9 m, provisions were up 7.8% from the previous year's level (31st December 2004: € 295.7 m). Other current liabilities within the group declined 9.2% to € 257.4 m (31st December 2004: € 283.6 m), which corresponds to 21.9% of total shareholders' equity and liabilities. Liabilities to banks amount to € 7.6 m.

Capital expenditures

Of the capital expenditures for 2005 and 2006 that have been approved as part of our pact for the future, which total around € 127 m, we have already spent € 29.2 m on measures aimed at streamlining processes and increasing productivity in the first half of 2005. In the same period of 2004, we spent € 13.5 m on such measures.

Employees

As of 30t^h June 2005, the krones group employed 8,955 people worldwide (31st December 2004: 8,897). The increase in employees in the first half of the year resulted from the expansion of the new »process technology« segment and the launch of spare parts production in China.

Profits up 2.8 percent

Earnings after taxes amounted to € 36.5 m for the first six months of the year, up 2.8% from the first half of the previous year (€ 35.5 m) under ias/ifrs.

Losses from a large-scale order in the process technology segment and increasing price pressures precluded a more-than-proportionate improvement in earnings. Thus, the result from ordinary business activities was down 9.8% against the previous year (€ 59.3 m), to € 53.5 m.

Assets, financial position, and results of operations

At the reporting date, the krones group's total assets amounted to € 1,177.9 m (31st December 2004: € 1,154.7 m), with current assets (including prepaid expenses) amounting to € 792.3 m (31st December 2004: € 796.8 m).

	30th June	mbe 31st Dece r
Asse ts
pla and ngib le as and fina l ass Prop erty nt ipm ent, inta sets ncia ets equ ,	341 .7	335 .9
Oth nt ts er n on-c urre asse	43.9	22.0
Inve ntor ies	354 .3	322 .8
ivab les, othe aid e and rued inco Rece rent ts, r cur asse prep xpe nses acc me	433 .7	398 .9
Cash and h eq lent uiva cas s	4.3	75.1
Sha reho lder s' nd li abil ity a ities equ
s' Sha reho lder ity equ	560 .6	.9 545
ision Prov s	318 .9	295 .7
Oth liabi litie nt er n on-c urre s	33.4	28.3
l liab ilitie Fina ncia s	7.6	1.2
Oth t liabi litie defe rred inco er cu rren s, me	257 .4	283 .6
Bala shee l t tota nce	1,17 7.9	1.15 4.7

krones group balance sheet structure, in € m

krones group earnings after taxes as of 30th June, in € m

8,955

krones group employees as of 30th June

	32.0
29.2
8,14 6
8,38 7
8,68 0
8,72 4

krones group capital expenditures as of 30th June, in € m

krones share passes the € 100 mark

The first half of 2005 has been surprisingly favourable for the krones share. The major stock market indexes have made considerable gains. The German stock market was among those giving investors substantial gains, with the mdax rising 17.6%. The krones share, which trades on the mdax, closed at € 100.00 on 30th June after having climbed as high as € 103.99 during trading. This represents an increase of around 21% from the € 85.99 with which the share started the year.

Outlook

Our first-half figures have reinforced our desire to grow. As part of our strategic planning, we are anticipating a five to ten percent increase in sales for the year. We are aiming to further increase profits. At the moment, it is impossible to predict how the market will react if our competitors push their way in, sometimes with extreme price cuts. However, given current trends, we believe we are well positioned.

We are looking to the second half of the year with reserved optimism as we see ourselves facing even more intense competition. Nevertheless, we believe that we will be able to maintain the positive trend in our operating results as set by our interim results. Several things suggest that this will be the case, including the roughly six percent increase in orders on hand as well as the more efficient processes that will result from the integration of our former subsidiaries. The plant agreement made at the start of this year and the anticipated improvements in our cost structures will also lend strength to this development.

And finally, drinktec, the world's largest trade fair for the beverage industry, takes place this fall in Munich and the entire industry is expecting it to bring new momentum and good sales.

krones

mdax

krones share

The krones share from 2000 to 2005

The krones share passes the € 100 mark for the first time.

krones group consolidated interim financial statements

rs' Liab ilitie d sh areh olde ity s an equ	30 05 June	31 Dec 04
	€ m	€ m
Sha reho lder s' ity equ	560 .6	545 .9
s for Prov ision sion pen s	61.0	59.8
Oth liab ilitie nt er n urre on-c s	33.4	28.3
liab ilitie Non rent -cur s	94.4	88.1
ision Prov s	116 .1	121 .9
Liab ilitie ban ks s to	7.6	1.2
Trad yab les e pa	76.9	114 .6
Liab ilitie affil d co s to iate nies mpa	3.1	1.6
s for Prov ision ting enci con es	141 .8	114 .0
Oth er li abil ities	.9 175	166 .1
liab ilitie Curr ent s	521 .4	519 .4
Defe rred inco me	1.5	1.3
l liab ilitie d sh areh olde rs' ity Tota s an equ	1,17 7.9	1,15 4.7

Asse ts	30 June 05	31 Dec 04
	in € m	in € m
ngib le as Inta sets	47.8	43.7
plan and Prop erty t, ipm ent equ ,	269 .7	267 .3
fina ncia l ass Non rent ets -cur	24.2	24.9
Oth nt ts er n on-c urre asse	43.9	22.0
Non rent ts -cur asse	385 .6	357 .9
Inve ntor ies	354 .3	322 .8
Trad able ceiv e re s	380 .0	329 .7
ivab les f affi liate d co nies Rece rom mpa	19.8	6.2
Oth t ts er cu rren asse	29.1	56.7
Cash and h eq uiva lent cas s	4.3	75.1
ent ts	787	790
Curr asse	.5	.5
aid e and rued Prep inco xpe nses acc me	4.8	6.3
l ass Tota ets	1,17 7.9	1,15 4.7

krones group consolidated balance sheet

as of 30t^h June 2005 ias/ifrs

krones group consolidated income statement

as of 30t^h June 2005 ias/ifrs

krones group consolidated cash flow statement

as of 30t^h June 2005 ias/ifrs

	200 5	200
	6 m onth s	6 m onth
	in € m	in €
r los s for the iod Net inco me o per	36.5	35.5
n of Dep recia tion and ortiz atio rent ts am non -cur asse	22.8	20.8
in p rovi sion Incr ease s	23.2	13.1
Oth ash d in er n on-c exp ense s an com e	-0.1	-0.1
Net gain from the disp osal of n nt ts on-c urre asse	0.0	-0.3
trad able and oth Incr in i tori ceiv sset e re er a ease nven es, s, s ibut able or f not attr to i ting inan cing act iviti nves es	-88 .2	-80
Dec e in trad yab les a nd o ther liab ilitie reas e pa s
ibut able to i ting or f inan cing iviti not attr act nves es	-21 .1	-9.5
Cash flow from ratin tivit ies ope g ac	-26 .9	-20
s fro l of Proc eed m th e dis rent ts posa non -cur asse	0.4
Cash uire plan and ipm ts to pert t, ent pay men acq pro equ y,	-18 .7	-10
Cash ngib le as ts to uire inta sets pay men acq	-10 .5	-7.4
Cash ts to uire solid ated ies pay men acq con com pan
and oth er b usin enti ties ess	-3.7	-1.5
Cash flow from inve stin tivit ies g ac	-32 .5	-18
Cash sha reho lder inor ity s hare hold ts to s/m pay men ers	-13 .7	-11
of b ond d lo Incr ease s an ans	6.4	-1.7
Cash flow from fina ncin tivit ies g ac	-7.3	-13
Cha cash and h eq uiva lent s to nge cas s	-66 .7	-52
Cha cash and h eq lent s du han s to uiva e to ates nge cas exc ge r ,
olid and valu atio atio cons n, n	-4.1
(1st ary) Cash and h eq uiva lent beg inni f the iod s at Janu cas ng o per	75.1	56.0
Cash and h eq uiva lent end of t he p erio d (30 th ) s at June cas	4.3

	2005	2004	Cha nge
	1Jan 30 Ju ne -	1Jan 30 Ju ne -
	€ m	€ m	%
Sale s rev enu es	820 .6	770 .4	6.5%
Cha f fin ishe d go ods s in inve ntor ies o nge
and rk in wo pro gres s	-2.4	-2.6
l ope Tota ratin g re ven ue	818 .2	767 .8	6.6%
teria ls an d co mab les u sed Raw ma nsu	-39 3.9	-36 4.7	8.0 %
rofit Gro ss p	424 .3	403 .1	5.3%
el ex Pers onn pen ses	-26 3.7	-24 4.6	7.8 %
Oth ting inco me/ er o pera exp ense s
and itali sed arch and dev elop t cap rese men exp ense	-84 .5	-78 .2	8.1 %
recia tion and ortis atio n of Dep rent ts am non -cur asse	-22 .8	-20 .8	% 9.6
l inc Fina ncia /exp ome ense	0.2	-0.2
lts f ord y bu Resu inar sine tivit ies rom ss ac	53.5	59.3	-9.8 %
inco Taxe s on me	-17 .0	-23 .8	% -28 .6
ings afte Earn r tax es	36.5	35.5	2.8%
	2005	2004	Cha nge
	2nd Qua rter	2nd Qua rter
	€ m	€ m	%
Sale	416 .1	387 .0	7.5%
s rev enu es
f fin Cha s in inve ntor ies o ishe d go ods nge
and rk in wo pro gres s	.6 -11	-6.2
l ope ratin Tota g re ven ue	404 .5	380 .8	6.2%
ls an d co mab les u sed Raw teria ma nsu	-19 2.9	-18 0.3	7.0 %
rofit Gro ss p	211 .6	200 .5	5.5%
el ex Pers onn pen ses	-13 4.9	-12 1.2	% 11.3
Oth ting inco me/ er o pera exp ense s
and itali sed arch and dev elop t cap rese men exp ense	-41 .1	-35 .6	15.4 %
and n of Dep recia tion ortis atio rent ts am non -cur asse	-11 .4	-11 .3	0.9 %
Fina ncia l inc /exp ome ense	0.0	-0.6
lts f ord inar y bu sine tivit ies Resu rom ss ac	24.2	31.8	-23 .9%
Taxe inco s on me	-5.3	-12 .8	-58 .6 %
ings afte r tax Earn es	18.9	19.0	-0.5 %

Consolidated statement of changes in equity of the krones group

as of 30t^h June 2005 ias/ifrs

ncili atio n of shar ehol ders ' equi Reco ty	30Ju ne20 04	31 Dec 2 004
	€ m	€ m	€ m
e (h gb) ity u nde ercia l Cod Equ r Ge n Co rma mm	435 .1	461 .1	482 .6
Valu n of atio rent ts non -cur asse	21.1	21.2	21.3
Defe rred tax item s	12.9	8.8
itali sed arch and dev elop Cap t rese men expe nse	13.9	19.3	28.9
Valu n of oth atio sset er a s	13.2	11.0	6.1
ket valu atio n of der ivat ive f inan cial inst ents Mar rum	4.1	2.9	5.7
Valu n of oth atio rovi sion er p s	3.3	3.3	3.2
leas Fina nce es	1.9	2.0	2.2
solid atio oced Con n pr ures	-0.4	-2.1	-2.3
Valu n of ns fo atio visio nsio pro r pe ns	-10 .0	-12 .5	-11 .2
Misc ella neo us	1.0	0.9	0.6
ity u nde Equ ias/ r ifrs	497 .2	520 .0	545 .9
ncili atio n of inco Reco net me		30Ju ne20 04	31 Dec 2 004
	€ m	€ m
nde l Cod e (h gb) Net Inco r Ge n Co ercia me u rma mm	35.0	61.8
itali sed arch and dev elop Cap t rese men expe nse	5.4	15.0
leas Fina nce es	0.1	0.3

	Pare nt com pany					Min ority inte rests			' Konz Reco ncili atio n of shar ehol ders equi ern-
	Subs cribe d	al Capit	ned Retai	Curre ncy	Othe	profi r G t roup	Curre nt	Equit y	Share s	Share s	Equit y	equi ty
	capit al	reser ves	ings earn	diffe rence s	reser ves	carrie d	grou p		in	in
				in eq uity		forw ard	profi t		capit al	ings earn
	in € m	in € m	in € m	in € m	in € m	in € m	in € m	in € m	in € m	in € m	in € m	in € m	n of Valu atio rent ts non -cur asse
f 1st As o Janu ary 200 4	26.9	103 .7	289 .8	0.0	4.1	70.6	0.0	495 .1	0.4	1.7	2.1	497 .2	Defe rred tax item s
den d pa Divi nts yme	—	—	—	—	—	-11 .9	—	-11 .9	—	—	0.0	-11 .9	itali sed arch and dev elop Cap rese men
(firs 4) Net inco t half me 200	—	—	—	—	—	—	35.2	35.2	—	0.3	0.3	35.5	Valu atio n of oth sset er a s
Allo ed e cati to re tain arni ons ngs	—	—	14.0	—	—	-14 .0	—	0.0	—	—	0.0	0.0	ket Mar
diff Curr ency eren ces	—	—	—	0.4	—	—	—	0.4	—	—	0.0	0.4	Valu n of oth atio rovi sion er p s
Cha s in the olid ated nge cons gro up	—	—	—	—	—	—	—	0.0	—	—	0.0	0.0	Fina leas nce es
Hed ntin ge a ccou g	—	—	—	—	-1,2	—	—	-1.2	—	—	0.0	-1.2	solid oced Con atio n pr ures
f 30 As o th June 200 4	26.9	103 .7	303 .8	0.4	2.9	44.7	35.2	517 .6	0.4	2.0	2.4	520 .0	n of ns fo Valu atio visio nsio pro r pe ns
(sec 04) inco ond hal f 20 Net me	—	—	—	—	—	—	26.7	26.7	—	0.1	0.1	26.8	Misc ella neo us
Allo ed e cati to re tain arni ons ngs	—	—	25.0	—	—	-25 .0	—	0.0	—	—	0.0	0.0	nde Equ ity u ias/ r ifrs
Curr diff ency eren ces	—	—	—	-2.9	—	—	—	-2.9	—	—	0.0	-2.9	ncili n of Reco atio net
Cha the olid ated s in gro nge cons up	—	—	-0.3	—	—	—	—	-0.3	-0.6	0.1	-0.5	-0.8	Net
Hed ge A ntin ccou g	—	—	—	—	2,8	—	—	2.8	—	—	0.0	2.8	itali sed arch and dev elop Cap rese men
f 31s t emb As o Dez er 20 04	26.9	103 .7	328 .5	-2.5	5.7	19.7	61.9	543 .9	-0.2	2.2	2.0	.9 545	Fina leas nce es
ied f ard he n Carr to t nt orw ew a ccou	—	—	—	—	—	61.9	-61 .9	0.0	—	—	0.0	0.0	Valu atio n of rent ts -cur non asse
Divi den d pa nts yme	—	—	—	—	—	-13 .7	—	-13 .7	—	—	0.0	-13 .7	Valu n of oth atio sset er a s
(firs 5) inco half Net t me 200	—	—	—	—	—	—	36.7	36.7	—	-0.2	-0.2	36.5	Defe rred tax item s
Allo ed e cati to re tain arni ons ngs	—	—	15.5	—	—	-15 .5	—	0.0	—	—	0.0	0.0	Valu n of ns fo atio visio nsio pro r pe ns
Curr diff ency eren ces	—	—	—	5.7	—	—	—	5.7	—	—	0.0	5.7	solid oced Con atio n pr ures
Cha the olid ated s in gro nge cons up	—	—	-3.5	—	—	—	—	-3.5	0.2	-0.4	-0.2	-3.7	Valu atio n of oth rovi sion er p s
Hed ntin ge a ccou g	—	—	—	—	-10 .1	—	—	-10 .1	—	—	0.0	-10 .1	ella Misc neo us
f 3o th As o June 200 5	26.9	103 .7	340 .5	3.2	-4.4	52.4	36.7	559 .0	0.0	1.6	1.6	560 .6	Net inco nde /ifr me u r ias s

	0.1	0.3
ts asse	0.1	0.2
	-2.3	-7.1
	-0.5	-5.2
	-2.5	-1.2
	-0.3	-1.1
	0.0	-0.1
	0.5	-0.3
	35.5	62.3

krones group segment reporting

January – June 2005 ias/ifrs

	echn olog Proc ess t y for b prod uctio n/ ever age		ngin eerin Syste ms e g for p rodu fillin ct g		kosm e for t he lo tput w ou rang e		kron es gr oup
	echn olog ess t proc y		and deco ratio n
	200 5	200 4	200 5	200 4	200 5	200 4	200 5	200 4
	6 m onth s	6 m onth s	6 m onth s	6 m onth s	6 m onth s	6 m onth s	6 m onth s	6 m onth s
	in € m	in € m	in € m	in € m	in € m	in € m	in € m	in € m
Sale s rev enu es	93.1	53.3	694 .7	681 .5	32.8	35.6	820 .6	770 .4
Net inco me	-3.0	-0.9	55.9	57.1	0.6	3.1	53.5	59.3
Jahr esüb huss ersc	-3.9	-1.3	40.1	35.2	0.3	1.6	36.5	35.5
loye s of 30th * Emp June es a	618	587	7,67 2	7,55 3	407	390	8,69 7	8,53 0
Retu les rn o n sa	-3.2 %	-1.7 %	8.0 %	8.4 %	1.8 %	8.7 %	6.5 %	7.7 %

* Consolidated group

Legal basis

The consolidated financial statements of krones ag (»krones group«) for the reporting period ended 30th June 2005 have been prepared in accordance with the International Financial Reporting Standards (ifrs) of the International Accounting Standards Board (iasb), London, applicable on the reporting date, including the interpretations issued by the International Financial Reporting Interpretation Committee (ifric), in accordance with ifrs 1 »First-time Adoption of International Financial Reporting Standards«. The Executive Board prepared the consolidated financial statements of krones ag as of 30t^h June 2005 on 27th July 2005.

kosme ges.m.b.h., Sollenau, Austria, has made use of the option under §245 of the Austrian Commercial Code to be exempted from the obligation to prepare consolidated financial statements in accordance with Austrian generally accepted accounting principles.

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

The »nature of expense« method has been used for the income statement. The group's reporting currency is the euro, and all amounts are in millions of euros.

Consolidated group

Besides krones ag, the consolidated financial statements as of 30t^h March 2005 include all material domestic and foreign subsidiaries in which krones ag holds more than 50% of the voting rights.

The consolidated group contains five domestic and 18 foreign subsidiaries.

krones ag acquired the remaining 25% of the shares in kosme ges.m.b.h., Sollenau, Austria, in fiscal 2005 and now holds 100% of the shares of this company. Moreover, kosme s.r.l.., Roverbella of Italy has also acquired a 35% stake in costec s.r.l., Roverbella of Italy and another 13% stake in keber s.r.l. Roverbella of Italy.

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

Notes to the financial statements of krones group

Besides these companies, which are included in the consolidated financial statements, 24 direct and indirect subsidiaries with either no business activity or only a small business volume are not included in the consolidated financial statements. Their influence on the group's assets, financial position, and results of operations is of minor importance.

A complete presentation of investment holdings is filed with the Commercial Register of the Regensburg Local Court (hrb 2344).

Consolidation principles

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

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

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

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

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

Interim results from inter-company transactions are not eliminated because they are of minor importance for the portrayal of the group's assets, financial position,and results of operations.

Currency translation

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

Any currency translation differences resulting from these different rates in the balance sheet and income statement are recorded without effect on income. Exchange differences resulting from the translation of equity using historical exchange rates are also offset against retained earnings.

In the individual financial statements of krones ag and its subsidiaries, receivables and liabilities in foreign currencies are valued at the closing rate and recognised as income or expense. Non-monetary items in foreign currencies are stated at historical cost.

Exchange rate differences compared with the previous year that are the result of capital consolidation are offset against other retained earnings without impact on income.

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

Accounting and valuation methods

The individual financial statements of krones ag and its domestic and foreign subsidiaries have been prepared using uniform accounting and valuation methods in accordance with ias 27.

Some discretion has been used in preparing the consolidated financial statements, particularly in terms of inventories and provisions, because their preparation requires some critical estimates and forecasts.

Intangible assets

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

		Clos ing rate = € 1		rate = € Ave rage 1
		30 June 2005	31 De c 200 4	2005	2004
doll us ar	usd	1.20	1.36	1.28	1.24
sh p d Briti oun	gbp	0.67	0.71	0.69	0.68
s fra Swis nc	chf	1.55	1.54	1.55	1.54
ish k Dan rone	dkk	7.45	7.44	7.44	7.44
adia n do llar Can	cad	1.48	1.66	1.59	1.62
Japa nese yen	jpy	133 .50	139 .72	136 .24	134 .44
ilian l Braz rea	brl	2.83	3.62	3.29	3.64
ican Mex pes o	mxn	12.9 2	15.2 3	14.2 0	14.0 3

Research and development expense

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

Goodwill

Goodwill resulting from capital consolidation is capitalised and amortised on an unscheduled basis if the existence of an impairment loss is determined.

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 life. The cost of internally generated plant and equipment comprises all costs that are directly attributable to the production process and an appropriate portion of overheads. Borrowing costs are not recognised as acquisition or production costs. A revaluation of property, plant, and equipment pursuant to ias 16 is not carried out.

Low-value non-current assets are written off in full in the year of acquisition and shown as a disposal the following year.

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

Leases

Leases in which the krones group, as the lessee, bears substantially all the risks and rewards incident to ownership of the leased asset are treated as finance leases pursuant to ias 17 upon inception of the lease. The leased asset is recognised as a 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 its »estimated useful life« or the »lease term«. Obligations for future lease instalments are recognised as »other liabilities«.

Financial assets

Financial assets are accounted for at cost, less unscheduled write-downs.

Derivative financial instruments

The derivative financial instruments used within the krones group are used to hedge against currency risks from operating activities. The financial instruments are measured at fair value as of the balance sheet date. Gains and losses from the measurement are recognised as income or expense in the income statement unless the conditions for hedge accounting are met.

The derivative financial instruments for which hedge accounting is applied comprise forward currency contracts and currency swaps whose changes in fair value are recognised either in income (»fair value hedge«) or in equity (»cash flow hedge«). In the case of cash flow hedges, to mitigate currency risks from existing underlying transactions, changes in fair value are initially recognised directly in equity without impact on income and subsequently recognised in the income statement when the hedged item is recognised in the income statement.

Inventories

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

Receivables and other assets

Receivables and other assets, with the exception of derivative financial instruments, are assets that are not held for trading. They are reported at amortised cost. Receivables with maturities of over one year that bear no or lower-than-market interest are discounted. Allowances are recognised to take account for all identifiable risks.

	In ye ars
Buil ding s	20 – 50
Tech l equ and chin nica ipm ent ma es
fitti tool and Fixt ipm ent ures ngs, s, equ ,

Construction contracts for specific customers

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

Deferred taxes

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

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

Provisions for pensions

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

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

Other provisions

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

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

Financial liabilities

Pursuant to ias 39, financial liabilities are measured at cost on first-time recognition. Cost is equivalent to the fair value of the consideration given. Transaction costs are included in this initial measurement of financial liabilities. After the initial recognition, all financial liabilities and derivative financial instruments that represent liabilities are measured at amortised cost. Advance payments received from customers are recognised as liabilities.

Sales revenues

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

Sales revenues are reported less reductions and cash discounts.

Financial Diary

November 2005 Interim Report as of 30th September April 2006 Balance Sheet Press Conference

For exact details, please visit our website.

Contact

krones ag Investor Relations Hermann Graf Castell Böhmerwaldstraße 5 93073 Neutraubling Germany

Pho ne	9(0) 8 00 4 94 0 1-70 32 5
Fax	9(0) 6 00 4 94 0 1-70 34 9
ail E-m	inve -rela tion s@k s.de stor rone
Inte rnet	w.kr ww one s.co m

The Annual Report is also available in German. A copy will be posted on request. You can also find it on our website under the heading »Investor Relations«.