KRONES AG — Interim / Quarterly Report 2006

Aug 2, 2006

q 2 .2006

krones ag Investor Relations

Germany

Phone

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Internet

Fax

Böhmerwaldstrasse 5

93073 Neutraubling

00 49(0)94 01-70 32 58

00 49(0)94 01-70 34 96

www.krones.com

investor-relations@krones.com

Dear shareholders and friends of

krones,

The German-language finance magazine »Focus Money« put krones on the cover of its 5 July 2006 issue and wrote the following in a feature entitled »Ertrag über Export« (»Earning with exports«): »Although krones produces exclusively in Germany – something many other companies deem unprofitable – the company is pulling in excellent earnings and is looking to become even more profitable in the future.«

Last fiscal year, around 87% of our sales were in exports. Sales revenues generated outside Europe accounted for more than half (54%) of our consolidated sales. This trend continued in the first six months of 2006. During this period, business with companies outside Europe boosted sales by nearly €100m to €920.4m, an increase of around 12.1% over the same period of the previous year. New orders were up 12.4% from €837.9m to €941.9m. And since earnings improved 5.2% to €38.1m despite ongoing price wars and deteriorating earnings quality, we remain reservedly optimistic that the current fiscal year will continue to shape up positively.

Volker KronsederChairman of the Executive Board

Hans-Jürgen Thaus Deputy Chairman of the Executive Board

		H1 200 6	H1 200 5	Cha nge
Sale s	in € m	920 .4	820 .7	12.1 %
ings afte Earn r tax es	in € m	38.1	36.2	5.2%
ord ulat New ive ers, cum
inclu ding life cycl rvice e se	in € m	941 .9	837 .9	12.4 %
Ord n ha nd a t 30 J ers o une
inclu ding life cycl rvice e se	in € m	712 .1	666 .3	6.9%
ital ndit Cap ures expe	in € m	36.2	30.1	% 20.3
loye Emp t 30 J es a une
ldw ide Wor		8,98 8	8,95 5	0.4 %
Ger man y		7,37 0	7,33 2	% 0.5
sha re * Earn ings per	€	3.57	3.41	4.7 %
ebit	in € m	59.5	53.0	12.3 %
flow Cash	in € m	62.3	59.0	5.6 %

* Diluted and basic

German industry continued to see a surge in new orders. The domestic and foreign orders situations in Germany's machinery sector developed well through the middle of this year, and capacity utilisation is up to 89%. As a result, the German Engineering Federation (vdma) has revised its forecast for 2006 sharply upward. The vdma now expects production in the German machinery sector to increase by as much as 5% in real terms, after having predicted just 2% growth back in February.

krones continues successful trend

Our operating results for the first half of the year put krones right on target. With sales and new orders both up by more than 12%, we have continued the positive trend and are well on our way to reaching the high end of our growth corridor of between five and ten percent for the year as a whole. The increase in orders that gave us a €100m year-on-year boost in sales and new orders in the first six months of the year indicates continued strong demand for our machines and lines.

Moreover, we stabilised profitability despite the negative impact ongoing price wars on the market for beverage filling lines and packaging machinery had on second-quarter earnings quality. Earnings before taxes grew 13.2% to €60.2m in the first half of 2006 (H1 2005: €53.2m). After-tax earnings were up 5.2% on the year-earlier period, to €38.1m.

This increase in earnings was due in large part to continued efforts to streamline processes and boost productivity throughout the krones group.

krones improves sales, new orders and profitability in the first half of 2006.

Economic climate improves

The global economy continues to look strong at mid-year. Neither the high oil prices nor price declines on the equity markets or talk about further interest rate hikes have been able to dampen economic sentiment. Analysts are standing by their predictions that global economic growth will be as high as 5%. Industry in the United States will once again be a major contributor to this growth, having recorded a considerable increase in production in the second quarter. The uptrend is also continuing in Japan, the world's second-largest economy. China has reported record gdp growth of 11.3% for the second quarter, and even the euro area has seen an increase in economic activity. The countries of Europe are also registering a revival in internal economic activity. Gross fixed capital formation has increased and higher capacity utilisation in manufacturing is an indication that capital spending is on the rise.

The economic climate in Germany continued to improve in the months from April to June. The upward trend gained momentum, and the Munich-based Ifo Institute for Economic Research expects the German economy to maintain this momentum over the medium term. The same expectation is reflected in Ifo's business confidence index, which had dipped slightly in May but then rebounded to 106.8 points in June. The index started the year at 101.8. The subindex that indicates the assessment of business conditions also rose, to 109.4 points, on higher retail sales.

Business conditions and expectations for manufacturing in Germany

Assessment of business conditions Business expectations Source: Ifo Institute for Economic Research

2002	32.2
2003	34.4
2004		35.5
2005		36.2
2006			38.1

Earnings Sales

krones group sales and earnings, H1, in € m

company situation and business development economic environment

New orders up 12.4%

New orders in the first half totalled €941.9m, up €104m or 12.4%, on the first six months of the previous year (€837.9m). At €453.4m, new orders in the months of April through June were up 14.4% on same period of 2005, in which new orders totalled €396.4m.

Orders on hand up 6.8%

The current backlog of orders will keep production capacities at krones well utilised through the next several months. At the reporting date of 30 June, orders on hand amounted to €712.1m, which is similar to the first-quarter level (€727.5m) and 6.9% higher than the year-earlier figure (€666.3m).

Large orders backlog ensures continued high production capacity utilisation.

krones posted a strong orders intake of €941.9m in the first six months of 2006.

Sales up 12.1%

krones group sales grew to €920.4m in the first half of 2006, for an increase of €99.7m or 12.1% over the same period of the previous year (€820.7m).

At €468.8m, sales for the months of April through June of this year were also up 12.6% on the second quarter of 2005 (€416.2m) and 3.8% on the first quarter of 2006 (€451.6m).

»Machines and lines for beverage filling and decoration« – our strongest segment by far, accounting for 88.5% of total sales – increased first-half sales by 17.3% over the same period of the previous year, to €814.9m (H1 2005: €694.8m). The »Machines and lines for beverage production/process technology« segment accounted for sales of €65.3m (H1 2005: €93.1m). »Machines and lines for the low output range (kosme)« generated €40.2m in sales (H1 2005: €32.8m).

krones sales up €100m – more than 12% – year-on-year.

krones group new orders, Q2, in € m

krones group orders on hand at 30 June, in € m

2002	566. 3
2003	560. 3
2004	629. 2
2005	666. 3
2006

712. 1

2002	259. 9
2003	287. 9
2004	379. 2
2005	396. 4
2006		453. 4

2002	325. 1
2003	350. 5
2004	387. 0
2005	416. 2
2006	468. 8

krones group sales, by segment

hgb ias/ifrs

krones group sales, H1, in € m

hgb ias/ifrs

krones group new orders, H1, in € m

2002	606. 4
2003
2004
2005
2006

663. 9
	784.	9
		837. 9
			941. 9

hgb ias/ifrs

hgb ias/ifrs 7

6 company situation and business development krones in figures

Capital expenditures up considerably

In the first half of the year, krones invested €36.2m in measures to optimise processes and further increase productivity. On the whole, we have budgeted €70m for the current fiscal year for capital expenditures aimed at expanding and securing our production locations. Such measures include the recently completed filler assembly centre and a seven-story technology centre that is slated for completion in 2007.

Workforce

At 30 June 2006, krones employed 8,988 people worldwide, 33 more than a year ago (30 June 2005: 8,955) and 41 fewer than at 31 December 2005 (9,029).

2002	8,38 7
2003	8,68 0
2004	8,72 4
2005	8,95 5
2006	8,98 8

krones employees at 30 June

2002				25.7
2003			24.3
2004		13.5
2005
2006
hgb	ias/ ifrs

krones group capital expenditures, H1, in € m

Profits up 5.2%

Earnings are up once again. After-tax profits rose 5.2% in the first six months to €38.1m (H1 2005: €36.2m). Net income for the second quarter was €19.0m, on par with the first three months of 2006 (€19.1m). Earnings before taxes amounted to €60.2m for the first half, up 13.2% on the same period of 2005 (€53.2m). Based on this figure and sales of €920.4m, our return on sales was 6.5%.

Balance sheet structure

The krones group's total assets increased 5.2% over the 31 December 2005 total to €1,349.2m thanks to the considerable expansion of our business volume.

Current assets grew 5.9% to €931.7m (31 December 2005: €879.9m), and their share of total assets remained virtually unchanged at 69.1% (31 December 2005: 68.6%).

The krones group maintained a favourable ratio of debt to equity, at 43.8%.

While we reduced non-current liabilities by 4.6%, current liabilities increased 9.9% over 31 December 2005 to €610.9m. This was mainly the result of an increase in shortterm provisions (+48.1%) and liabilities to banks (+€51.9m).

30 J	31 D
200	200
6	5
un	ec
417	402
.5	.6
	356 .7
931	879
.7	.9
	56.5
591	571
.0	.9
758	710
.2	.6
147	154
.3	.7

Non rent ts -cur asse	417 .5
of w hich plan and ngib le as pert t ipm ent, inta sets pro y, equ ,
and fina l ass ncia ets	365 .8
Curr ent ts asse	931 .7
of w hich h an d eq uiva lent cas s	14.9
Equ ity	591 .0
l deb Tota t	758 .2
rent liabi litie Non -cur s	.3 147
liabi litie Curr ent s	610 .9
l Tota	1,34 9.2

555.9

1,282.5

krones group asset and capital structure, in € m

krones group earnings after taxes, Q2, in € m

2002	15.3
2003	18.5
2004	18.7
2005	18.8
2006	19.0

hgb ias/ifrs

krones group earnings after taxes, H1, in € m

2002	32.2
2003		34.4
2004		35.5
2005		36.2
2006			38.1

hgb ias/ifrs 9

8 company situation and business development krones in figures

krones share price up 14.3%

Concerns about growing inflation risks and rising interest rates caused sharp swings on the global financial markets in May and June.

The downward pull on the equity markets also brought the krones share, which had reached an all-time high of €112.00 on 25 April, down below the €100 mark and as low as €88.86 on 14 June. The share then recovered to €97.98 at 30 June, a 14.3% improvement on the €85.70 price tag with which it started the year.

krones wins European FoodTec Gold Award

Our aseptic rainbow filler – a cold aseptic filling line that is capable of bottling and labelling four different flavours of yoghurt smoothies or other dairy drinks at one time – earned us a European FoodTec Gold Award at the Anuga FoodTec in Cologne on 4 April. The Anuga FoodTec is the world's largest food and beverage trade fair, and krones used the opportunity to demonstrate its expanded expertise for process technology, filling, and internal logistics for the dairy industry.

Outlook

After the close of the first half of 2006, it is already clear that krones is well on its way to achieving the goals we set at the start of the year.

The continued growth of the beverage market, our successful entry into the process technology market, our continued success in aseptic filling, a field in which we have been the world leader for the past three years, and the continued expansion of our lifecycle services are all fuelling growth in sales and new orders, which is currently at the high end of our +5% to +10% growth corridor.

Our mid-year figures (+13.2%) show that we have also made major progress toward our aim of improving earnings before taxes. With profits up 5.2% (after taxes) at the mid-year point, we are confident that the year-end result will also show a substantial improvement.

krones aims to substantially increase sales and profits in 2006.

krones

mdax

The krones share from January to June 2006

The krones share from 2002 to 2006

The krones share shows strong potential, reaching an all-time high of €112 in April.

11

10 company situation and business development krones in figures

Consolidated interim financial statements of

the krones group

Consolidated balance sheet

14

30 Ju	2006 ne	ber 31 D 2005 ecem
in € m	in € m	in € m	in € m
	591 .0		571 .9
67.5		64.6
6.4		6.5
36.6		39.2
0.3		0.3
11.5		14.0
25.0		30.1
			154 .7
109 .9		74.2
56.7		4.8
158 .2		156 .7
67.5		112 .2
0.2		0.7

ity a nd l iabi litie Equ s	30 Ju ne	2006
	in € m	in € m
		591 .0
ity Equ
Prov ision s for sion pen s	67.5
Defe rred liab ilitie tax s	6.4
Oth rovi sion er p s	36.6
Trad yab les e pa	0.3
Oth er fi cial liab ilitie nan s	11.5
Oth er li abil ities	25.0
liab ilitie Non rent -cur s		147 .3
Oth rovi sion er p s	109 .9
Liab ilitie ban ks s to	56.7
Adv ed ts re ceiv ance pay men	158 .2
Trad yab les e pa	67.5
Effe ax li abil ctive inco me t ities	0.2
Oth er fi cial liab ilitie nan s	16.9
Oth er li abil ities and rual acc s	201 .5
liab ilitie Curr ent s		610 .9
l equ ity a nd li abil ities Tota		1,34 9.2

in € m	in € m	in € m	in € m
	591 .0		571 .9
67.5		64.6
6.4		6.5
36.6		39.2
0.3		0.3
11.5		14.0
25.0		30.1
			154 .7
109 .9		74.2
56.7		4.8
158 .2		156 .7
67.5		112 .2
0.2		0.7
16.9		22.9
201 .5		184 .4
	610 .9		555 .9
	1,34 9.2		1,28 2.5

ts Asse	30 Ju ne	2006	ber 31 D 2005 ecem
	in € m	in € m	in € m	in € m
ngib le as Inta sets	54.2		54.4
plan and Prop erty t ipm ent equ ,	296 .4		287 .1
Fina ncia l ass ets	15.2		15.2
erty plan t and ipm ent, inta ngib le as sets and fina ncia l ass ets Prop equ , ,	365 .8		356 .7
Defe rred tax ets ass	7.7		9.4
Trad ceiv able e re s	41.9		36.0
Oth sset er a s	2.1		0.5
Non rent ts -cur asse		417 .5		402 .6
Inve ntor ies	344 .3		326 .9
Trad able ceiv e re s	481 .3		422 .9
Effe ctive inco me t ecei vab les ax r	7.7		7.0
Oth sset er a s	83.5		66.6
Cash and h eq lent uiva cas s	14.9		56.5
Curr ent ts asse		931 .7		879 .9
l ass Tota ets		1,34 9.2		1,28 2.5

	2006	2005
	1 Jan – 30 Jun	1 Jan – 30 Jun	Cha nge
	in € m	in € m	in %
Sale s rev enu es	920 .4	820 .7	12.1
Cha f fin ishe d go ods s in inve ntor ies o nge
and rk in wo pro gres s	13.9	-2.4
l ope Tota ratin g rev enu e	934 .3	818 .3	14.2
ds a nd s ervi hase d Goo ces purc	-46 0.0	-39 3.9	16.8
el ex Pers onn pen ses	-28 3.4	-26 3.8	7.4
Oth d ca lised ting inco me/ pita er o pera exp ense s an
deve lopm ent cost s	-10 7.2	-84 .8	26.4
Dep recia tion rtisa tion and wri te-d amo own s ,
nt ts on n on-c urre asse	-24 .2	.8 -22	6.1
EBIT	59.5	53.0	12.3
l inc Fina ncia /exp ome ense	0.7	0.2
bef Earn ings taxe ore s	60.2	53.2	13.2
Taxe inco s on me	-22 .1	-17 .0	30.0
inco Net me	38.1	36.2	5.2
Prof (loss ) sha re of it min ority inte rest s	0.5	0.3
Prof (loss ) sha re of sha reho lder s of it kro nes gro up	37.6	35.9
re (d sic) ings sha ilute d/ba in € Earn per	3.57	3.41
	Q2 2 006	Q2 2 005	Cha nge
	in € m	in € m	in %
Sale s rev enu es	468 .8	416 .2	12.6
Cha s in inve ies o f fin ishe d go ods ntor nge
and rk in wo pro gres s	6.8	-11 .6
l ope Tota ratin g rev enu e	475 .6	404 .6	17.5
Goo ds a nd s ervi hase d	-23 8.7	-19 2.9	23.7
ces purc el ex Pers	-14 3.9	-13 5.0	6.6
onn pen ses Oth d ca lised inco me/ er o ense s an
ting pita pera exp deve lopm ent cost s	-50 .8	-41 .2	23.3
and te-d Dep recia tion rtisa tion wri amo own s ,
nt ts on n on-c urre asse	.8 -11	-11 .4	3.5

EBIT 30.4 24.1

26.1

Financial income/expense

-0.7 0.0

Earnings before taxes

29.7 24.1

23.2

Taxes on income

-10.7 -5.3

101.9

Net income 19.0 18.8

1.1

Profit

(loss) share of minority interests

0,2 0.2

Profit

(loss) share of shareholders of

krones group

18.8 18.6

Earnings per share (diluted/basic) in €

1.79 1.77

	200 6	200 5
	6 ths mon	6 ths mon
	in € m	in € m
ings bef Earn taxe ore s	60.2	53.2
and n (re als) Dep recia tion ortis atio am vers	24.2	22.8
Incr in p rovi sion ease s	36.0	23.2
Defe rred item cha ised in i tax nge s rec ogn ncom e	1.6	0.5
d int inco Inte rest t eres exp ense s an me	-0.3	-0.1
eed s/lo from the disp osal of n Proc nt ts sses on-c urre asse	-0.2	0.4
Oth ash item er n on-c s	-0,6	-0.1
trad able and oth Incr in i tori ceiv sset ease nven es, e re s, er a s
not attr ibut able to i ting or f inan cing act iviti nves es	3.1 -11	-95 .8
e in trad yab les a nd o ther liab ilitie Dec reas e pa s
ibut able or f not attr to i ting inan cing act iviti nves es	-41 .7	-19 .6
Cash ed f ratin tivit ies erat gen rom ope g ac	-33 .9	-15 .5
paid Inte rest	-1.2	-0.8
Inco me t pai d axes	-7.7	-10 .2
Cash flow from ratin tivit ies ope g ac	.8 -42	-26 .5
Cash ngib le as ts to uire inta sets pay men acq	-8.6	-10 .5
eed s fro m th e dis l of i gibl Proc ntan sets posa e as	0.2	0.2
Cash ts to uire pert plan t and ipm ent pay men acq pro y, equ	-27 .6	-19 .6
eed s fro m th e dis l of erty plan t and ipm ent Proc posa prop equ ,	0.8	0.4
Cash uire sha res i n aff iliat ed c anie ts to pay men acq omp s	-3.5	-3.7
ived Inte rest rece	1.5	0.9
Cash flow from inve stin tivit ies g ac	-37 .2	-32 .3
Cash ts to pay men com pany ow ners	-14 .7	-13 .7
eed s fro ew b win Proc m n orro g	51.9	6.4
Cash leas e lia bilit ts to ies pay men pay	-0.2	-0.2
Cash flow from fina ncin tivit ies g ac	37.0	-7.5
Net cha in ca sh a nd c ash ivale nts nge equ	-43 .0	-66 .3
Cha in ca sh a nd c ash ivale risin g fro cha nts a rate nge equ m ex nge s	1.4	-3.8
Cash and uiva lent the inni f the iod
h eq beg s at cas ng o per	56.5	75.1
Cash and h eq lent the end of t he p d uiva s at erio cas	14.9	5.0

Consolidated income statement

Consolidated cash flow statement

Consolidated statement of changes in equity

interim financial statements

	Pare nt com pany					Min ority	Grou p
	al Capit	al Capit	ned Retai	Curre ncy	Othe r	fit Grou p pro	Curre nt	Equit y	inte rests	equi ty
	stock	reser ves	ings earn	diffe rence s	reser ves	carrie d	grou p		Equit y
				in eq uity		forw ard	profi t
	in € m	in € m	in € m	in € m	in € m	in € m	in € m	in € m	in € m	in € m
ber At 31 D 200 ecem 4	26.9	103 .7	310 .0	-2.5	5.2	18.8	61.7	523 .8	1.9	525 .7
ied f ard Amo unt to n nt carr orw ew a ccou						61.7	-61 .7	0.0	0.0	0.0
(€1.3 re) Divi den d pa r sha nt yme 0 pe						-13 .7		-13 .7	0.0	-13 .7
solid ated Con net inco H1 2 me 005							35.9	35.9	0.3	36.2
Allo cati on t tain ed e arni o re ngs			15.5			-15 .5		0.0	0.0	0.0
diff Curr ency eren ces				4.9				4.9	0.0	4.9
Cha the olid ated s in nge cons gro up			-4.9					-4.9	1.2	-3.7
Hed ntin ge a ccou g					-10 .1			-10 .1	0.0	-10 .1
At 30 J 200 5 une	26.9	103 .7	320 .6	2.4	-4.9	51.3	35.9	535 .9	3.4	539 .3
solid ated Con net inco H2 2 me 005							27.3	27.3	-0.1	27.2
Allo cati tain ed e arni on t o re ngs			9.5			-9.5		0.0	0.0	0.0
diff Curr ency eren ces				1.8				1.8	0.0	1.8
Hed ntin ge a ccou g					3.6			3.6	0.0	3.6
ber At 31 D ecem 200 5	26.9	103 .7	330 .1	4.2	-1.3	41.8	63.2	568 .6	3.3	571 .9
ied f ard Amo unt to n nt carr orw ew a ccou						63.2	-63 .2	0.0	0.0	0.0
(€1.4 re) Divi den d pa nt r sha yme 0 pe						-14 .7		-14 .7	0.0	-14 .7
solid ated 006 Con net inco H1 2 me							37.6	37.6	0.5	38.1
Allo ed e cati on t tain arni o re ngs			9.5			-9.5		0.0	0.0	0.0
diff Curr ency eren ces				-2.7				-2.7	0.0	-2.7
Cha the olid ated s in nge cons gro up			-2.3					-2.3	-1.2	-3.5
Hed ntin ge a ccou g					1.9			1.9	0.0	1.9
6 At 30 J une 200	26.9	103 .7	337 .3	1.5	0.6	80.8	37.6	588 .4	2.6	591 .0

	hine s and Mac for b ever age ess t echn	line s prod uctio n/	hine s and Mac for p rodu fillin ct and deco ratio	line s g	hine s and Mac for t he lo w ou (kos me)	line s tput rang e	kron es gr oup
	proc	olog y		n
	200 6	200 5	200 6	200 5	200 6	200 5	200 6	200 5
	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	65.3	93.1	814 .9	694 .8	40.2	32.8	920 .4	820 .7
Seg t men ebit	-1.0	-3.0	57.6	55.2	2.9	0.8	59.5	53.0
loye * Emp t 30 J es a une	570	618	7,79 1	7,70 4	423	407	8,78 4	8,72 9
les ( ros) ** Retu rn o n sa	-1.5 %	-3.2 %	7.2%	8.0%	6.7%	1.8%	6.5%	6.5%

* Consolidated group ** Basis: ebt

krones group segment reporting

Consolidated group

Besides krones ag, the consolidated financial statements for the period ended 30 June 2006 include all material domestic and foreign subsidiaries in which krones ag holds more than 50% of the voting rights.

krones ag acquired another 15% of the shares in kosme s.r.l.,in fiscal 2006 and now holds a 70% stake in this company.

Roverbella, Italy,

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

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

Consolidation principles

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

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

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

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

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

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

Notes to the consolidated financial statements of krones group

22

General disclosures

Legal basis

The consolidated financial statements of krones ag (»krones group«) for the period ended 30 June 2006 have been prepared in accordance with the International Financial Reporting Standards (ifrss) 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« 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 can be found on p. 29 of this report.

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.

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

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

Currency translation

The functional currency for krones ag is the euro.

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

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

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

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

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

Accounting policies

The separate financial statements of krones ag and its domestic and foreign subsidiaries have been prepared using uniform accounting policies, in accordance with ias 27. Essentially the same accounting policies were applied as for the consolidated financial statements for the period ended 31 December 2005.

Some discretion has been used in preparing the consolidated financial statements, particularly in terms of measurement 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 lives. The amortisation of intangible assets is carried out over a useful life of between three and five years and recognised under »Depreciation and amortisation of intangible assets and property, plant and equipment.«

Research and development costs

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

Goodwill

Goodwill resulting from acquisition accounting is capitalised and an impairment loss recognised in accordance with ias 36 if impairment is found to exist.

Property, plant and equipment

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

		Clos	ing r ate	rate Aver age
		30 Ju 2006 n	31 D ec 20 05	2006	2005
doll us ar	usd	1.27 1	1.18 3	1.22 8	1.28 5
Briti sh p d oun	gbp	0.69 3	0.68 7	0.68 7	0.68 6
s fra Swis nc	chf	1.56 7	1.55 6	1.56 1	1.54 6
ish k Dan rone	dkk	7.45 9	7.46 1	7.46 0	7.44 2
Can adia n do llar	cad	0 1.41	1.37 5	1.39 9	1.58 6
Japa nese yen	jpy	145 .700	139 .100	142 .045	136 .240
ilian l Braz rea	brl	2.76 7	2.75 0	2.68 5	3.29 3
Chin inbi (yu an) ese renm	cny	10.0 22	9.54 7	9.85 8	10.6 21
Mex ican pes o	mxn	14.3 58	12.6 02	13.3 33	14.2 03

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

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

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

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

Leases

Leases in which the krones group, as the lessee, bears substantially all the risks and rewards incident to ownership of the leased asset are treated as finance leases pursuant to ias 17 upon inception of the lease. The leased asset is recognised as a 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«.

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 assets Financial assets are recognised at cost, less impairment losses.
• Derivative financial instruments

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

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

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

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

The derivative financial instruments are measured at fair value at the balance sheet date. Gains and losses from the measurement are recognised as 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 and subsequently recognised in the income statement when the hedged item is recognised in the income statement.

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

Inventories

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

For the sake of convenience in measuring inventories, the FiFo and weighted average cost formulas are applied to groups of inventories of similar nature and use to the company.

Receivables and other assets

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

Construction contracts for specific customers

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

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

Deferred tax items

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

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

Provisions for pensions

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

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

Other provisions

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

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

Financial liabilities

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.

Sales revenues

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

Sales revenues are reported less reductions.

Standards and interpretations not applied early The iasbhas issued the following standards,

interpretations,existing standards, the application of ag did not apply early:

and amendments to which is not yet mandatory and which krones

• ifrs 7 »Financial instruments: Disclosures«
• Amendment to ias 1 »Presentation of financial statements« – disclosures about capital

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

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

financial reporting

• ifric 7 »Applying the restatement approach under ias 29in hyperinflationary economies«
• ifric 8 »Scope of ifrs 2«
• ifric 9 »Reassessment of embedded derivatives«
• ifric 10 »Interim financial reporting and impairment«

f the Nam d lo cati e an on o com pan y
	Sha re in ital cap
	held by k ron es a g
	(dire and ind ) % ct irect
sped blin Sped bH, blin Neu trau ition s-Gm Neu trau neu ger g	100 .00
Inte rnat iona le Co ratio ns-G esel lsch aft mbH Neu kic kro nes ope ,	trau blin 100 .00 g
ebra ucht chin mbH blin ac G en G Neu trau ecom mas g ,	100 .00
la-N Belg Louv ain- ium s.a. kro nes n.v., euve ,	100 .00
Nord dby, k ic Ap S, Brøn Den kro nes mar	100 .00
dby, k a/s, Brøn Den san der han sen mar	100 .00
Lyon Fran kro nes s.a.r .l., ce ,	100 .00
Bolt kro nes uk l td., on, uk	100 .00
Staf ford shir Burt n Tre nt UK kosm e uk ltd., on o e,	100 .00
Gard a (v r), Italy kro nes s.r.l .,	100 .00
Ned erla nd b Bosk herl and Net kro nes .v., oop s ,	100 .00
enfa Mas chin brik Vien Aus tria kro nes ges .m.b .h., na,	100 .00
Ges ellsc haft Solle tria Aus kosm e mbh nau , ,	100 .00
Spó lka z Pola nd War kro nes .o.o. saw , ,	100 .00
l Equ s Ind Lda. Port ipam ento ustr iais Barc Port kro nes uga aren a, ,	l 100 .00 uga
kau, Fede Mos Russ ian ratio kro nes o.o.o n .,	100 .00
d. hare Rom ania Pro Buc st, Rom ania kro nes s.r.l .,	100 .00
Butt wil, Swit zerla nd kro nes ag,	100 .00
Iber ica, elon in Barc Spa kro nes s. a., a,	100 .00
h Re pub lic Prag Czec kro nes s.r.o ue, .,	100 .00
rbel la, Italy Rove kosm e s.r .l.,	70.0 0
Surl atin Bue Aire Arge ntin kro nes a s. a., nos s, a	100 .00
São Pau lo, Braz il kro nes do b razi l ltd a.,	100 .00
São lo, il Pau Braz kro nes s. a.,	100 .00
ry (T ng) hine Ltd., Chin Mac aica Co. Taic kro nes ang a ,	100 .00
(Beij ing) chin Ltd., Chin Ma ery C Beij ing, kro nes o. a	100 .00
Ltd gko Chin Asia Hon kro nes ng, a .,	100 .00
Indi a Pv t. Ltd., Ban galo Indi kro nes re, a	100 .00
n Co Ltd., Toky Japa Japa kro nes o, n	100 .00
hine Ltd., ario ada Mac ry Co Bram pton Ont Can kro nes , ,	100 .00
And Ltda otá, Colo mbi ina Bog kro nes a .,	100 .00
a Ltd ul, Kore Seo Kore kro nes a .,	100 .00
de c Mex Mex ico C ity, Mex ico kro nes s. a. v.,	100 .00
(Pro p.) L Sou ther n Af rica td., Joha sbu Sou th A frica kro nes nne rg,	100 .00
klin, Wis in, Inc., Fran kro nes, cons usa	100 .00
de V zuel la Maq uina rias Cara cas/ Ven kro nes a s. a., ene ezue	100 .00
(Tha ilan d) C Ltd., gko k, Tha ilan d Ban kro nes o.	51.0 0
sult and Ltd., gko k, Tha ilan d Beve Con ing Eng inee ring Co. Ban rage	49.0 0

Shareholdings

q

2

.2006

krones ag Investor Relations Böhmerwaldstrasse 5 93073 Neutraubling Germany

Phone 00 49(0)94 01-70 32 58 Fax 00 49(0)94 01-70 34 96 E-mail investor-relations@krones.com Internet www.krones.com