Krones : Annual Report 2020

krones Group Annual Report 2020

Focus on strengths

2020 highlights

Krones' consolidated revenue fell in 2020 as a result of the Covid-19 pandemic by 16.1% to €3.32 billion.

Order intake was also significantly affected by corona and, at €3.31 billion, was 19.0% lower than in 2019. However, the fourth quarter showed first positive signs of improvement.

Krones' profitability was impacted by one-time expenses of around €72 million for capacity adjustments. eBITDA decreased from €227.3 million to €133.2 million. The eBITDA margin was 4.0% (previous year: 5.7%). Excluding these one-off effects, the eBITDA margin was 6.2% (previous year: 6.6%).

Krones generated free cash flow of €221.3 million in 2020 (previous year: -€94.4 million).

Due to the negative consolidated net income, Krones will pay out only the statutory minimum dividend for 2020. This corresponds to €0.06 per share.

2020	2019	Change
Revenue € million	3,322.7	3,958.9	- 16.1 %
Order intake € million	3,307.0	4,083.5	- 19.0 %
Order backlog at 31 December € million	1,211.3	1,385.7	- 12.6 %
eBITDA € million	133.2	227.3	- 41.4 %
eBITDA margin %	4.0	5.7	- 1.7 PP*
eBIT € million	- 40.8	43.9	-
eBT € million	-36.6	41.7	-
eBT margin %	- 1.1	1.1	- 2.2 PP*
Consolidated net income € million	- 79.7	9.2	-
Earnings per share €	- 2.52	0.30	-
Dividend per share €	0.06**	0.75	- €0.69
Capital expenditure for PP&e and intangible assets € million	93.8	168.9	- €75.1 million
Free cash flow € million	221.3	- 94.4	+ €315.7 million
Net cash at 31 December*** € million	184.9	38.1	+ €146.8 million
Working capital to revenue **** %	28.3	26.9	+ 1.4 PP*
roCe %	- 2.6	2.7	- 5.3 PP*
Employees at 31 December
Worldwide	16,736	17,353	- 617
Germany	10,364	10,733	- 369
Outside Germany	6,372	6,620	- 248

*Percentage points **As per proposal for the appropriation of earnings available for distribution ***Cash and cash equivalents less debt **** Average of last 4 quarters

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DeCLArATIon on	oTHer InformATIon
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To oUr sHAreHoLDers

Focusonstrengths ................................................................... 5

LetterfromtheExecutiveBoard ................................................. 19

TheExecutiveBoard ................................................................ 22

ReportoftheSupervisoryBoard ................................................. 23

TheSupervisoryBoard ............................................................. 28

TheKronesshare .................................................................... 30

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Focus on strengths

The Covid-19 pandemic had a massive impact on the global economy in 2020. KRONES' business was also hit. We will continue to feel the impacts of the corona crisis beyond 2020, and we still face challenges in the short term. KRONES nevertheless looks with confidence to the future.

The company operates in long-term growth markets. We also have other strengths that we have built up over the past years and decades. KRONES positioned itself early to benefit from the megatrends of sustainability and digitalisation. We have unique line expertise and a strong global footprint. Despite heavy investment in the future, the company's financial and capital structure is very solid.

KRONES will focus on its strengths for continued success and profitable growth in the medium and long term.

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KRONES' strengths

KRONES operates in markets that are growing in the medium and long term. The world population is increasing, with rising prosperity in emerging markets.

This and increasing urbanisation are megatrends that support growth.

KRONES is well positioned globally. We have strong regional structures, most of all in service, but also in production and procurement. KRONES has highly qualified employees both in Germany and inter-nationally. The international workforce accounts for some 38% of the total.

Filling and packaging lines are made up of many individual machines and systems. KRONES has full mastery over interoperation between the individual components. This line expertise also provides thefoundation for exploiting the opportunities of digitalisation.

KRONES has a strong financial and capital structure. This provides a solid basis for investing in key technologies and addressing the challenges of the future.

We have considerable digital know-how and regard digitalisation as a great opportunity. KRONES will provide digital tools and services enabling customers to make their production moreflexible and transparent and hence also to reduce their operating and labour costs.

Sustainability is among the most important issues of our time. KRONES recognised this trend early on with its 'enviro' sustainability programme in 2008.

enviro machines are particularly resource-efficient.

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Long-term demand growth

Long-term demand growth

Consumption of packaged beverages was slightly down in 2020 due to corona. But in the medium and long term, demand is rising. Eating and drinking are basic needs. And the population is steadily growing. In addition, two further mega-trends mean that consumers are increasingly frequently opting for packaged beverages and foods. Firstly, more people in emerging and developing countries are joining the middle classes. Consumption increases as incomes rise. Secondly, more and more people are moving from rural areas to cities, especially in Africa and Asia. This urbanisation drives demand for packaged foods and beverages as people align their lifestyles and consumption patterns to city living.

KRONES provides innovative and also regionally adapted machines and lines enabling food and beverage producers to fill and package their products efficiently and safely. As the leading full-service supplier of bottling and pack-aging equipment, we can exploit the opportunities of growth markets.

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Aseptic line for sensitive beverages

Long-term demand growth

Tea is very popular in Asia. It is a drink that is tradi-tionally enjoyed at home. But urbanisation means that tea is also increasingly frequently consumed on the go - and consequently in bottled form. This drives demand for high-performance and safe filling and packaging technology.

At the end of 2019, for example, Nui Tien Pure Water, a subsidiary of the Vietnamese TH true Milk group of companies that previously focused on milk produc-tion, invested in an aseptic line made by Krones. The line for aseptic filling of sensitive products is suitable for tea, but also for juices with particles, dairy milk and rice milk. It has a capacity of 36,000 PeT containers per hour. In addition to the filling and packaging equipment, Krones also supplied a syrup room with integrated tea extraction.

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KRONES has considerable line expertise

Line expertise

A filling and packaging line is made up of many individual machines and systems. These include inspectors, PET bottle blowers, fillers, labellers, packers and palletisers. Each of these is a highly efficient unit on its own. Combining them into an efficient and reliable production line requires them to be perfectly coordinated. Thanks to many years of experience and profound knowledge of the entire production process in a filling and packaging line, KRONES has full mastery over interoperation between the individual components.

The individual machines are coordinated so that the entire production process runs perfectly smoothly and the filling and packaging line delivers maximum performance. KRONES is also able to use its line expertise in digitalisation. We know what communication is needed between individual line components and what parameters to monitor and control. KRONES' line expertise provides the foundation for exploiting the opportunities of digitalisation.

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Canning line: ultra-high performance

Line expertise

Hungarian brewery Borsodi selected Krones to provide a complete beer canning line. Krones sup-plied all machines and components for the new line, from the empty can depalletiser and inspector to the flash pasteuriser (VarioFlash B), filler (Modulfill vfs-C) and full can palletiser (VarioPac).

The line meets Borsodi's demanding requirements with over 90% efficiency and a throughput of 50,000 cans per hour. As well as being highly efficient, the line stands out with short changeover times, excellent product safety and energy econ-omy. A further upside was rapid installation. Just ten months went by from order placement to the moment the first retail-ready beer can came off the production line.

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Digitalisation: already well positioned

Digitalisation

The corona crisis significantly accelerated the trend towards digitalisation in the filling and packaging industry. KRONES has already been investing heavily in digital-isation for years. This incurred initial losses, but the investment is now paying off. KRONES already has considerable digital expertise and provides customers with digital solutions such as remote service.

Transforming our successful products and services into the digital world is ex-tremely important for the company's future success. Over 300 software engineers and IT specialists work on digital innovations at KRONES. The focus in all of these innovations is on added value for our customers.

Our filling and packaging lines are becoming smarter and provide customers with valuable added benefits. For customers, alongside lower production and labour costs, it is important that they can produce flexibly, that all production steps are transparent and that problems are quickly resolved. To this end, KRONES aims to provide customers with digital tools and services on a single platform that keeps track of the entire line. We are well positioned to achieve this ambitious goal.

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Highly digitalised line

Digitalisation

Altmühltaler Mineralbrunnen is one of Germany's biggest beverage producers. Krones has now delivered its seventh PeT line at the Breuna production facility.

The new line, like all the other plants, is highly digitalized and to this end features various solutions from the SitePilot Suite: the Line Management job order control system, the Line Diagnostics plant analysis system and the Asset Management maintenance and repair tool. The SitePilot Planning production plan-ning and control system creates a production plan for each line and generates a job order list from it. This full production plan then goes into the Line Management System. When the oper-ator starts production, the system then already knows exactly what materials are needed and provisions the raw materials, consumables and supplies fully automatically on an electric monorail. Conversely, it is also possible to trace back exactly what product was produced and filled with what inputs and when. This practi-cally rules out production errors.

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Early focus on sustainability pays

Sustainability

Operating sustainably and delivering on our corporate social responsibility have always been very important to KRONES. Sustainability has also long been a priority for KRONES customers. We introduced the enviro sustainability program as long ago as 2008. enviro is an externally audited management system that shines the spotlight on the eco-efficiency of the KRONES product portfolio.

The enviro programme systematically improves the energy efficiency of KRONES products and has already delivered substantial savings for customers. enviro has also enabled KRONES to gain a competitive edge. We are able to provide machinery and equipment that help customers achieve their ambi-tious sustainability goals. For this purpose, they need both high-performance and resource-efficient production equipment. KRONES has set itself the ambitious target of reducing the carbon footprint of produced machines and lines in the upstream and downstream value chain (Scope 3 emissions) at the customer by 25% from 2019 to 2030.

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innocent selects KRONES based on sustainability credentials

Sustainability

Smoothie and juice producer innocent drinks is build-ing the first bottling plant of its own in Rotterdam, called 'the blender'. Sustainability is a top priority here. For example: the factory will be completely carbon neutral and water use is to be cut to a minimum. Based on its strong sustainability credentials, Krones secured the contract for four complete PeT filling lines. Each of the four identical PeT lines fills up to 32,000 bottles per hour.

The Contipure AseptBloc DA blow moulder/filler block consists of a Contiform 3 Pro stretch blow moulder and a Modulfill Asept aseptic filler. innocent made a partic-ularly sustainable choice with the Contipure D preform sterilisation module. The module has lower consump-tion of hydrogen peroxide, steam and energy.

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Robust capital structure and strong liquidity

Finances

Even after the high level of investment in recent years, KRONES continues to have strong finances. The equity ratio was 39.4% at the end of 2020. KRONES' liquidity position is also comfortable. Even in the difficult 2020 financial year, the company maintained liquidity reserves of around €1 billion for almost the entire year. Last year, the company generated a free cash flow of €221.3 million. At the end of 2020, KRONES had a net cash position (cash and cash equivalents less bank debt) of some €185 million.

KRONES' high financial and capital strength gives the company sufficient financial scope to master short-term challenges, invest in key technolo-gies and finance future growth.

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Solid financial and capital structure enables high levels of investment

Finances

krones Group equity (€ million) and equity ratio (%)

1,226

2016

1,433

43.8%

1,330

2017

1,370

1,200

2018

2019

2020

Krones has invested heavily in expanding its inter-national service and production locations and in digitalisation in recent years. As the company was mostly able to finance this investment out of its own resources, the Group's equity ratio remains a very solid 39.4%.

Krones also managed well in the 2020 pandemic year and generated a large free cash flow. The company's liquidity cushion has grown to €217 million, creating sufficient scope for action.

Krones Group cash and cash equivalents at 31 December (€ million)

369

219

217

182

110

2016

2017

2018

2019

2020

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Strong global footprint

Global footprint

International food and beverage companies produce worldwide. Customer proximity is the key to responding quickly to customers' needs. This is a decisive competitive advantage, especially in the service business. KRONES operates ser-vice centres and branches at over 100 global locations. Spare parts and qualified staff who speak the customer's language are quickly on site anywhere in the world.

KRONES also has global reach in production and procurement. Among other places, we manufacture products in China for local markets. Our international facilities also produce spare parts and in some cases supply products to our German manufacturing plants. Under the direction of special regional teams, KRONES sources an ever-increasing volume of materials on international pro-curement markets.

All of this requires qualified international personnel. KRONES has substantially expanded its foreign workforce in recent years and will continue to do so for the medium term. At the end of 2020, KRONES employed a total of 6,372 people internationally, 4,055 of them in emerging markets.

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KRONES always close to the customer

1,801

Global footprint

1,546

1,342

1,110

386

393

2016 2017

671

452

2018 2019

Krones Group employees in Africaand in China and Asia/Pacific

639

2020

1,716

Krones has been expanding its global network for many years in order to strengthen the service side and use the benefits of international procurement and production locations. The new plant in Debrecen, Hungary, which is set to go into full operation in mid-2021, enables Krones to strengthen its international competitiveness and reduce production costs from 2022 by some €20 million a year.

In the fast-growing Asia and Africa regions, Krones not only operates a production plant in Taicang, China, but also has well-established service centres close to its customers. Krones scores well with customers thanks to its highly qualified service force in each region. This is also reflected in heavy investment in international training centres, such as in Kenya and China.

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Letter from the	ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents	FinanCial stateMents
Executive Board

Letter from the Executive Board

Dear shareholders and friends of krones,

Our everyday life in 2020 was heavily affected by the Covid-19 pandemic. The corona crisis presented KRONES with major challenges. From the beginning, our top priority was to protect people. As the virus spread, we responded very quickly and took all necessary precautions to avoid endangering the health of our employees and customers. We were helped in this by experience gained at our site in

"Krones is a strong company	China, where the pandemic originated.
and looks with confidence to
the future."
krones benefits from its global footprint
Christoph Klenk
Ceo	Besides concern for the health of people in contact
with KRONES, the focus was on providing the best

possible support for customers. Tough government measures, such as travel restrictions, made contacts more difficult. During this phase, KRONES' decentralised structure was a major advantage. We have locations and employ-ees in over 70 countries around the world. This meant we were able to provide customers with the products and services they needed to keep their production going. In addition, we made use of digital products and solutions. This was es-pecially helpful in service. It enabled us to provide customers with professional support in troubleshooting without always having to be on site ourselves.

krones also impacted by the corona crisis

KRONES managed well through the 2020 pandemic overall. The company's stable foundations provided solid support throughout the crisis. KRONES had sufficient financial resources at all times and had no need for governmentassistance. The corona crisis nevertheless impacted our business, and had a significant effect on the figures for 2020. Consolidated revenue was down 16% year-on-year to €3.3 billion in 2020, while the order intake decreased by 19% to €3.3 billion. On a positive note, aſter a weak first half year, the contract value of orders picked up significantly in the third and especially the fourth quarter.

KRONES already launched extensive cost-cutting measures in 2019. This en-abled us to contain the impact of the revenue shortfall on earnings. Earnings before interest, taxes, depreciation and amortisation (EBITDA) went down from €227.3 million in the previous year to €133.2 million. It should be noted, how-ever, that KRONES incurred just under €72 million in expenditure during 2020 for structural measures to adjust capacity. Excluding that expenditure, the EBITDA margin of 6.2% (previous year: 5.7%) was slightly above the most recent guidance range of 5.5% to 6.0%. In total, KRONES incurred a consolidated loss of €79.7 million in the 2020 pandemic year (previous year: consolidated net in-come of €9.2 million). Free cash flow developed positively in the reporting year, increasing by €315.7 million to €221.3 million (previous year: -€94.4 million). Overall, considering the challenging circumstances, KRONES delivered respect-able results in 2020.

KRONES' long-term dividend policy is to pay out 25% to 30% of consolidated net income to shareholders. Due to the negative net income, the Executive Board and Supervisory Board will propose to the Annual General Meeting on 17 May 2021 that only the statutory minimum dividend, which is €0.06 per share, be distributed for the 2020 financial year and that the remaining earnings avail-able for distribution from the 2020 financial year be carried forward.

Letter from the Executive Board

ManageMent RepoRt

krones responding to customer trends

Provided that there are no new sweeping economic impacts, the company expects revenue to grow again from 2021. That does not mean, however, that KRONES is expecting revenue to quickly regain pre-crisis levels. This is the most important insight from the customer surveys we conducted in the third quar-ter of 2020. Many of our customers were very guarded about planned capital expenditure over the next two years due to the Covid-19 pandemic. The already successful cost-cutting measures taken in 2019 are not enough to prepare the company for this situation. So that KRONES stays competitive and successful in the long term, we have to adjust capacity to the business volume we expect in the short and medium term. Regrettably, this also requires us to reduce our workforce. That was an extremely difficult decision for the Executive Board, but it was unavoidable.

In addition to the reduction in force by 600 positions across the Group in the course of 2020, approximately 400 additional employees accepted individual and voluntary offers to terminate their contracts by the end of November 2020. The Executive Board made a further decision in December 2020 to reduce the workforce at German locations by a further 350 positions in the most socially responsible manner possible.

Saving the future…

KRONES has already significantly enhanced its flexibility with a large variety of measures. We are taking advantage of international procurement markets and further expanding our global service and production network. This includes our plant in Hungary, which is fully operational from 2021. An addi-tional important step is that we are splitting out the brewery business and bringing it under a separate legal entity. The new structure enables this business to operate more efficiently.

In 2021, the Covid-19 pandemic will continue to affect us worldwide and weigh on the investment climate. Nevertheless, we expect revenue to pick up slightly, and as a result of the structural measures we expect better profitability than in 2020. With a 2.5% to 3.5% revenue growth, we expect an EBITDA margin of around 6.5% to 7.5%. The target for the working capital to revenue ratio is 26% to 27%.

…and designing the future

To stay competitive, we will continue to work hard at the cost side. But focusing exclusively on cost-cutting measures would be short-sighted. Because in the long term, the market in which KRONES operates is growing. When the corona crisis is over, the market will once again offer attractive opportunities. Accordingly, the company is pushing ahead with innovative products and services and, above all, digitalisation. We have invested heavily in this area in recent years, and that puts us in a good position. KRONES will exploit this strength and take advantage of the great opportunities presented by digitalisation.

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Letter from the	ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents	FinanCial stateMents
Executive Board

A further promising growth driver is sustainability. Our customers have ad-opted ambitious environmental and climate targets. To achieve them, they need resource-efficient production systems. KRONES has many innovative ma-chines and lines on offer in this regard. This strength has not come about by chance. The company introduced the enviro sustainability program as long ago as 2008. This externally audited management system placed an early focus on eco-efficiency in our product portfolio. With enviro, KRONES was ahead of its time in terms of sustainability.

KRONES has further strengths, which we present to you in more detail under "Focus on strengths" on pages 5 to 18 of this report. We will systematically focus on these competitive advantages and take advantage of the long-term growth opportunities in our markets.

KRONES' greatest strength is intangible and cannot be measured in numbers: Our corporate DNA. This is characterised by team spirit and collaboration. The reduction in the workforce in 2020 leſt our DNA intact. For us, this is the most important and most positive insight from an extremely difficult year. On be-half of the entire Management Board, I would like to thank all employees for their commitment in 2020. The highly qualified KRONES team will continue to go from strength to strength.

Christoph Klenk Ceo

The Executive Board

ManageMent RepoRt

The Executive Board

Christoph Klenk Ceo Intralogistics Process Technology

Norbert Broger Cfo

Thomas Ricker Cso

Markus Tischer International Operations and Services Digitalisation

Ralf Goldbrunner Bottling and Packaging Equipment

Compact Class

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Report of the Supervisory	ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents	FinanCial stateMents
Board

Report of the Supervisory Board

Volker Kronseder Chairman of the Supervisory Board

Ladies and Gentlemen,

The Covid-19 pandemic presented KRONES with ex-ceptional challenges in 2020. Our primary concern was to protect employees, customers and everyone in contact with KRONES. The economic situation was a further focus of attention. Revenue and earn-ings were down sharply in 2020 due to corona, and it will be some years before business volume for KRONES regains its 'pre-crisis' level. The situation created an ongoing need to act in order to secure the company's future and competitiveness. In close coordination with the Supervisory Board, theExecutive Board worked to ensure implementation of the steps to improve profitability already decided in 2019. Further capacity adjustments were also decided upon in 2020. The decision to reduce the workforce was very difficult for KRONES. The Supervisory Board endorses the structural measures and will constantly monitor their implementation and the status quo.

Advice and oversight

The Supervisory Board of KRONES AG continuously monitored and advised the Executive Board during the 2020 financial year, as prescribed by the German Stock Corporation Act and the company's articles of association, and dis-charged its responsibilities with due care. Provisions of the German Stock Corporation Act and the German Corporate Governance Code concerning the Executive Board's reporting obligations to the Supervisory Board were com-plied with at all times. The Executive Board regularly informed the Supervisory Board about the company's business and financial situation and risk manage-ment in written and oral reports both during and outside of Supervisory Board meetings. With regard to decisions of particular significance to KRONES AG and the Group, the Supervisory Board was informed and involved by the Executive Board at an early stage. The Chairman of the Supervisory Board and the Chief Executive Officer in particular maintained regular contact between meetings. In that connection, they jointly discussed matters of corporate strategy, current business performance, the risk situation, risk management and compliance.

A focus of the Supervisory Board's work in 2020 was the impact of the Covid-19 pandemic on KRONES' revenue and earnings performance, as well as cost-cut-ting measures. Structural measures focused among other things on adjusting workforce capacity to the decreased business volume. The Supervisory Board also coordinated in-depth on corporate strategy.

Changes in membership of the Supervisory Board

There was a change in the membership of the Supervisory Board in 2020 on the employee side. Deputy Chairman of the Supervisory Board Werner Schrödl entered the non-working phase of partial retirement and consequently stepped down from the Supervisory Board with effect from 1 July 2020. The workforce elected Markus Hüttner to succeed Mr. Schrödl on the Supervisory Board. Josef Weitzer was elected by the Supervisory Board as the new Deputy Chairman of the Supervisory Board.

KRONES supports Supervisory Board members on their appointment and during training and professional development measures. In financial year 2020, the members of the Supervisory Board were briefed with comprehensive information on the new German Corporate Governance Code and on the Act Implementing the Second Shareholder Rights Directive (SRD II).

Report of the Supervisory Board

ManageMent RepoRt

No conflicts of interest

According to recommendation E.1 of the German Corporate Governance Code, each member of the Supervisory Board is required to disclose conflicts of inter-est to the Chairman of the Supervisory Board without delay. No conflicts of interest were disclosed in the reporting period.

Attendance at Supervisory Board meetings

In total, six regular Supervisory Board meetings were held in 2020. At some meetings, the Executive Board attended in a guest capacity. As a rule, however, the Supervisory Board met without the Executive Board. In accordance with Recommendation D.8 of the German Corporate Governance Code, we provide the following information on meeting attendance by individual members of the Supervisory Board:

Supervisory Board member	Number of meetings	Meetings attended
Volker Kronseder	6	6
Werner Schrödl (until 30 June 2020)	2	2
Dr. phil. Verena Di Pasquale	6	6
Robert Friedmann	6	6
Klaus Gerlach	6	6
Oliver Grober	6	6
Thomas Hiltl	6	6
Markus Hüttner (from 1 July 2020)	4	4
Norman Kronseder	6	6
Prof. Dr. jur. Susanne Nonnast	6	6
Beate Eva Maria Pöpperl	6	6
Norbert Samhammer	6	6
Petra Schadeberg-Herrmann	6	5
Jürgen Scholz	6	6
Hans-Jürgen Thaus	6	6
Josef Weitzer	6	6
Matthias Winkler	6	6

Supervisory Board meeting reports

The first meeting of the Supervisory Board took place on March 18. A represen-tative of KRONES' auditors attended for a portion of the meeting as a guest. Chief Finance Officer Norbert Broger provided the Supervisory Board with a presentation of the highlights and how key figures developed in the 2019 finan-cial year. The auditor then gave the Supervisory Board a detailed explanation of the audit engagement together with the focal points of the audit of the 2019 annual financial statements and provided a detailed overview of the audit. Questions from the Supervisory Board were answered by the auditor in full. The Supervisory Board then ratified the annual financial statements and man-agement report of KRONES AG and approved the consolidated financial state-ments and consolidated management report. Further topics of the first Super-visory Board meeting included the new German Corporate Governance Code and the government's draſt act for implementing the second Shareholder Rights Directive (SRD II). In addition, the Chairman of the Supervisory Board presented the agenda for the 2020 Annual General Meeting to the Supervisory Board. The Supervisory Board then adopted the agenda. In the report on busi-ness performance, the Executive Board informed the Supervisory Board about the current business environment and KRONES' business development. He also went over the key corona measures.

The Supervisory Board convened for its second, constitutive meeting aſter the virtual Annual General Meeting on 18 May. Supervisory Board Chairman Volker Kronseder bade farewell to long-term member Werner Schrödl, who entered the non-working phase of partial retirement with effect from

1 July 2020 and consequently stepped down from the Supervisory Board. Volker Kronseder thanked Werner Schrödl for a good and successful working relationship over many years. Mr. Schrödl had been on the Supervisory Board as an employee representative since 2005 and Deputy Chairman of the Super-visory Board since 2007. The Supervisory Board unanimously elected Josef Weitzer as the new Deputy Chairman of the Supervisory Board with effect from 1 July 2020. Markus Hüttner was elected by the workforce to the Supervisory

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Report of the Supervisory	ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents	FinanCial stateMents
Board

Board as a new member to succeed Werner Schrödl. As part of the Executive Board's report, the Executive Board informed the Supervisory Board about the impact of the corona crisis on the global economy and KRONES' customers. He also outlined current business developments and the key figures for the first quarter of 2020.

The third meeting of the Supervisory Board in the 2020 financial year took place on 22 July. Under the "Supervisory Board and Executive Board Matters" agenda item, the Supervisory Board adopted amendments to the rules of pro-cedure of the Supervisory Board and Executive Board. Chief Executive Officer Christoph Klenk reported at the meeting on implementation of the measures to improve earnings adopted in 2019 and went into the challenges of the Covid-19 pandemic. As part of the business report, the members of the Execu-tive Board in charge of the various units informed the Supervisory Board about the effects of corona and the current situation. A further major topic at the meeting comprised the impacts of the pandemic on the global economy and KRONES' customers, together with possible scenarios and their implications for the company. In the same connection, the Supervisory Board also consulted on any necessary capacity adjustments.

On 27 October, the Supervisory Board held its fourth meeting of 2020. An out-side expert explained to the Supervisory Board the requirements for reviewing the system of Executive Board remuneration in accordance with the Act Imple-menting the Second Shareholder Rights Directive (SRD II). She also presented the individual components of the new remuneration system. Chief Executive Officer Christoph Klenk presented the "Saving the Future", "Designing the Fu-ture" programme to the Supervisory Board, together with the action areas within the programme. In addition, the members of the Executive Board each informed the Supervisory Board about the operating environment, the current situation, the results of the customer survey and strategic measures in their re-spective executive portfolios. A further topic related to target setting and the timescale for the voluntary workforce reduction programme.

The fiſth meeting of the Supervisory Board in 2020 took place on 8 December. Strategy was the main item on the agenda. The Executive Board provided the Supervisory Board with an explanation of future customer needs and the re-sulting product innovations and business models. In addition, the Executive Board outlined potential adjustments to structures and processes.

At the sixth meeting of the Supervisory Board on 9 December, the Supervisory Board addressed the Declaration of Compliance pursuant to section 161 of the German Stock Corporation Act. A further agenda item was the remuneration system for the Executive Board in accordance with the second Shareholder Rights Directive (SRD II). In this connection, an outside expert informed the Su-pervisory Board about details of revisions to the current remuneration system. Another item on the agenda was the report of the Audit and Risk Management Committee addressing the topics of risk management, internal auditing and compliance. Committee Chairman Hans-Jürgen Thaus explained the subject matter of the committee meeting of 18 November 2020. The Executive Board then presented the economic report to the Supervisory Board, together with the annual and capital expenditure budget for 2021.

The work of the Audit and Risk Management Committee

The Audit and Risk Management Committee consists of Supervisory Board Chairman Volker Kronseder, Werner Schrödl (until 30 June 2020), Norman Kronseder, Hans-Jürgen Thaus, Josef Weitzer, Jürgen Scholz and Markus Hüttner (from 1 July 2020). Its Chairman is Hans-Jürgen Thaus. The Audit and Risk Man-agement Committee oversees the company's accounting and financial report-ing, the audit of the financial statements and other reporting, and prepares re-lated proposals for Supervisory Board resolutions. In addition, the committee prepares the Supervisory Board's review of the annual financial statements, the management report and the auditor's report for the separate and consolidated financial statements, and makes recommendations.

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Board

The Audit and Risk Management Committee held three meetings in 2020. In accordance with Recommendation D.8 of the German Corporate Governance Code, we provide the following information on meeting attendance by individ-ual members of the Audit and Risk Management Committee:

Furthermore, the Audit and Risk Management Committee monitors the effectiveness of the internal control system, the risk management system and the compliance system.

Committee member	Number of meetings	Meetings attended
Volker Kronseder	3	3
Werner Schrödl (until 30 June 2020)	2	2
Markus Hüttner (from 1 July 2020)	1	1
Norman Kronseder	3	3
Jürgen Scholz	3	3
Hans-Jürgen Thaus	3	3
Josef Weitzer	3	3

In its first meeting on 12 March, the committee primarily prepared the Super-visory Board meeting held to ratify the financial statements. Chief Finance Officer Norbert Broger explained the key figures for 2019, both for the KRONES Group and for KRONES AG. A representative of KRONES' auditors then informed the committee in detail about the scope, content and focal points of the audit. The members of the Audit and Risk Management Committee unanimously agreed to recommend that the Supervisory Board ratify the annual financial statements and management report of KRONES AG for the 2019 financial year and approve the consolidated financial statements and consolidated manage-ment report for 2019. Also at its first meeting, the committee consulted on the non-financial report. The committee members passed a resolution recom-mending that the Supervisory Board ratify the report.

On May 18, the Audit and Risk Management Committee met to elect the com-mittee's deputy chairperson. The previous deputy chairman, Werner Schrödl, entered the non-working phase of partial retirement and consequently stepped down from the committee on 1 July 2020. The committee members unani-mously elected Josef Weitzer as the new deputy chairman with effect from

1 July 2020. Likewise with effect from 1 July 2020, Markus Hüttner joined as a new member of the Audit and Risk Management Committee.

The third meeting of the Audit and Risk Management Committee took place on 18 November. At that meeting, the heads of Controlling, Internal Audit and Compliance informed the members of the committee in detail about the cur-rent risk situation, internal audit and compliance management.

The work of the Standing Committee

The Standing Committee consists of Werner Schrödl (until 30 June 2020),

Josef Weitzer, Markus Hüttner (from 1 July 2020), Norman Kronseder and Volker Kronseder. It is chaired by Volker Kronseder. The committee generally deals with all other topics that are outside the remit of the Audit and Risk Manage-ment Committee. These include, for example, human resources strategy and Executive Board and Supervisory Board remuneration. The Standing Commit-tee did not meet in 2020.

Supervisory Board agrees with audit results

The annual financial statements of KRONES Aktiengesellschaſt prepared by the Executive Board, the consolidated financial statements, the management report of KRONES AG and the group management report for the period ended

31 December 2020 were examined by the auditors elected by the annual general meeting, ERNST & YOuNG GmBH Wirtschaſtsprüfungsgesellschaſt, and each is-sued with an unqualified audit report. The audited annual financial statements

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Board

and consolidated financial statements, the management report of KRONES AG and the consolidated management report for the period ended 31 December 2020 were duly submitted to all members of the Supervisory Board for review. The audited financial statements and management reports were the subject of the Supervisory Board meeting held to ratify the financial statements on 24 March 2021. Representatives of the auditing firm also participated in the meeting and informed the Supervisory Board of their audit results and the focal points of their audit.

The Supervisory Board noted and approved the audit results. No objections were raised following the final review by the Supervisory Board, which covered in particular the matters described in the auditor's audit report including the audit procedures. The Supervisory Board has ratified the annual financial state-ments of KRONES AG and approved the consolidated financial statements as well as the Executive Board's proposal for the appropriation of earnings avail-able for distribution. The 2020 annual financial statements of KRONES AG are thus ratified.

The auditors included in their audit the Executive Board's report, in accordance with section 312 of the German Stock Corporation Act, on KRONES AG's relations to affiliated companies and submitted their audit report to the Supervisory Board. The audit by the auditors did not give rise to any objections. The auditor issued the following unqualified audit opinion on the dependency report: "Based on our due audit and assessment, we confirm that

• 1. the statements as to fact made in the report are accurate,

• 2. the consideration given by the company in respect of the legal transactions referred to in the report was not unreasonably high."

The audit of the report in accordance with section 312 of the German Stock Cor-poration Act on KRONES AG's relations to affiliated companies did not give rise to any objections. The Supervisory Board therefore agreed with the results of the audit by the auditors. Following the final outcome of its own review, the Supervisory Board did not raise any objections to the Executive Board's con-cluding declaration on relations with affiliated companies.

In addition to the statutory audit, ERNST & YOuNG GmBH Wirtschaſtsprüfungs-gesellschaſt also performed a limited assurance review of the separate com-bined non-financial report of KRONES AG and the Group for the period from

1 January to 31 December 2020. On the basis of that review, the auditor did not raise any objections to the non-financial report and fulfilment of the statutory requirements relating to it.

Thanks to the Executive Board and the workforce

The Covid-19 pandemic made 2020 a very challenging financial year for the entire KRONES team. The members of the Supervisory Board would like to thank the Executive Board and all of the company's employees for their dedicated work under sometimes difficult conditions.

Neutraubling, March 2021

The Supervisory Board

Volker Kronseder

Chairman of the Supervisory Board

ManageMent RepoRt

The Supervisory Board

Volker Kronseder

Chairman of the Supervisory Board

* University Hospital Regensburg

* Economic Advisory Board, Bayerische

Landesbank

Robert Friedmann

Spokesman for the central managing board of the Würth Group

* Zf Friedrichshafen Ag

Josef Weitzer**

Deputy Group Employees' Council Chairman Deputy Composite Employees' Council Chairman

Employees' Council Chairman, Neutraubling

* Sparkasse Regensburg

Klaus Gerlach**

Head of Central International Operations and Services

* Other Supervisory Board seats held, pursuant to Section 125 (1) sentence 5 of the German Stock Corporation Act

Markus Hüttner **

Deputy Group Employees' Council Chairman Deputy Composite Employees' Council Chairman

Deputy Employees' Council Chairman, Neutraubling

Oliver Grober**

Chairman of the Employees' Council, Rosenheim

** Elected by the employees

Dr. Verena Di Pasquale**

Deputy Chairperson of DgB Bayern

(the German Trade Union Confederation in Bavaria)

Thomas Hiltl**

Chairman of the Employees' Council, Nittenau

ManageMent RepoRt

Norman Kronseder

Farmer and forester

* Bayerische Futtersaatbau GmbH

Petra Schadeberg-Herrmann

Managing Partner, Krombacher Brauerei Bernhard Schadeberg GmbH & Co. Kg, Krombacher Finance GmbH, Schawei GmbH, Diversum Holding GmbH & Co. Kg

Prof. Dr. jur. Susanne Nonnast

Professor at Ostbayerische Technische Hochschule (oTH) Regensburg

Jürgen Scholz**

First authorised representative, Ig Metall administrative office in Regensburg

* Infineon Technologies Ag

Beate Eva Maria Pöpperl **

Independent Member of the Employees' Council

Hans-Jürgen Thaus

* Maschinenfabrik Reinhausen GmbH

Norbert Samhammer

Managing Director, Samhammer Holding GmbH

* Samhammer Ag

Matthias Winkler

Managing Partner,

WW + Kn Steuerberatungsgesellschaft mbH

* Other Supervisory Board seats held, pursuant to Section 125 (1) sentence 5 of the German Stock Corporation Act

** Elected by the employees

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The Krones share	ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents	FinanCial stateMents

The KRONES share

"The corona pandemic nega-tively impacted investment confidence among Krones customers. This also affected our share price."

Olaf Scholz

Head of Investor Relations

" Most equity markets close 2020 positively despite corona slump

"

krones share price shows slight decrease of 2.1%

High liquidity drives international stock markets into positive territory

The 2020 stock market year was almost entirely dominated by the corona pandemic. Nevertheless, the year got off to a promising start. Share prices continued to rise aſter the successful stock market year in 2019. But from mid-February onwards, the corona pandemic took command of the capital markets. Fears of a collapse of the global economysent share prices spiralling downwards without exception through to the end of March. The DAX lost almost 40% in a single month. But equity markets recov-ered as quickly as they had fallen. Investors speculated on a rapid economic upswing to be brought about by massive support measures from governments and central banks.

Aſter spending much of the third quarter moving sideways, equity markets put in a final spurt in the fourth quarter. This was driven by good prospects for fast-track approval of corona vaccines and ongoing high levels of liquidity provided by central banks. Even new lockdowns towards the end of 2020 were unable to dampen the positive mood on the markets, with the result that many stock markets ended the difficult 2020 stock market year in positive territory.

The leading German share index, the DAX, improved by 3.5% to close the report-ing year at 13,719 points. As a result, the DAX ended the year only slightly below its all-time, February 2020 high of close to 13,800 points. The Euro Stoxx 50 did not perform quite as positively. Representing the 50 largest companies in the euro area, the index lost 5.1% in the reporting period. Conversely, 2020 saw the Dow Jones index reach new record levels. The leading uS stock market index climbed 7.2%. An even more dynamic upward trend was seen on the Japanese stock market. The Nikkei index rose by 16.0% in the reporting year.

1 | to ouR shaReholdeRs	2 | Consolidated	3 | deClaRation on	4 | Consolidated	5 | notes to the Consolidated
The Krones share	ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents	FinanCial stateMents

krones share price has almost compensated the losses due to corona

The Krones share price was unable to fully make up the losses caused by the corona crisis over the course of the year. Over the full year 2020, our shares underperformed the sDAX, which was driven by online retailers.

KRONES shares started 2020 with price gains. The generally positive stock market environment provided a tailwind. Our share price reached its high for 2020 at €75.50 on 24 January. Through to mid-February, KRO-NES shares held steady above the €70 mark. Thereaſter, our shares were caught up in the general downward spiral on the stock markets triggered by the globalCovid-19 pandemic. The KRONES share price reached its low for the reporting year at €41.92 on 23 March - 37.9% down on the beginning of the year. Between April and June, the shares then climbed back rapidly towards the €60 mark, beforecoming under pressure due to the second wave of the corona pandemic in the third quarter and moving thereaſter between €50 and €60.

The KRONES share price rose sharply again following publication of the nine-month figures at the beginning of November and the Capital Market Day on 12 November. In the last two months of the year, the share price rose from just under €50 to a year-end price of €66.05, which was only 2.1% below the year's opening price of €67.50. Including the €0.75 per share dividend, the annual performance of the KRONES share price in 2020 was minus 0.9%. The SDAX, of which KRONES has been a component since 2018, was once again the top performer in the DAX index family with a gain of 18.0% in 2020. This strong increase was mainly driven by online retailers such as Home24, Global Fashion Group and zooplus, which in some cases gained several hundred percent.

share price performance compared with the  .

Krones sharesDAX indexed

Key figures for the Krones share

Earnings per share

Equity per share

Free cash flow per share

Price/earning ( closing price for the year Dividend per share High

Low

Year's closing price

at 31 December	2020	2019	2018
Earnings per share €	- 2.52	0.30	4.78
Equity per share €	37.98	43.36	45.36
Free cash flow per share €	7.00	- 2.99	3.82
Price/earning (P/e) ratio based on closing price for the year	-	225.0	14.1
Dividend per share €	0.06*	0.75	1.70
High €	75.50	88.85	122.80
Low €	41.92	47.46	66.10
Year's closing price €	66.05	67.50	67.50

* As per proposal for the appropriation of earnings available for distribution

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The Krones share	ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents	FinanCial stateMents

krones shares deliver solid long-term return

The Krones share price has risen by an average of 3.5% a year over the last ten years. Including dividends, the annual value growth is 5.1%.

The past ten years from 2011 to 2020 have seen our share price increase by 41%. KRONES' average annual share price gain over the ten-year period comes to 3.5%. That is less than the SDAX price index (+8.7%), meaning the SDAX excluding dividends. Includingdividends, and assuming these are reinvested in KRONES shares, the average annual return since 2011 comes to 5.1%. The comparable SDAX performance in-dex gained 11.0% annually.

Krones sharesDAX price index

krones shares retain strong position in sDAX index

KRONES shares have been listed and available for trading on all German stock exchanges since 29 Octo-ber 1984. Our shares are no par value ordinary bearer shares. Each share carries one vote in the annual gen-eral meeting. The total number of KRONES shares is

31,593,072.

Krones shares remained one of the larger and highest-reve-nue sDAX components in the reporting year.

Our share has been a component of the SDAX since mid-2018. The SDAX is the Ger-man stock exchange index containing the 70 companies that succeed those listed in the mDAX in market capitalisation and revenue. During the reporting period, as in the previous year, KRONES occupied 25th place among the companies in the SDAX in terms of market capitalisation. In terms of trading volume, on the other hand, the KRONES share was unable to maintain the high level of the previous year, holding 29th place at the end of 2020 (previous year: 11th place).

Total daily trading volume in XETRA and on Frankfurt Stock Exchange averaged around 48,000 KRONES shares in 2020 (previous year: 71,000 shares). 2020 like-wise saw fewer KRONES shares change hands on alternative trading platforms, which primarily handle orders from institutional investors. Average daily trading volume there came to around 65,000 shares (previous year: around 108,000).

Key data for the

Number of shares

share

German securities identification number

­ € ticker symbol

Number of shares	,,
German securities identification number
­ € ticker symbol

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The Krones share	ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents	FinanCial stateMents
Shareholder structure

krones to pay statutory minimum dividend for 2020

KRONES' shareholder structure remained virtually unchanged in the reporting period. At 31 December 2020, Familie Kronseder Konsortium GbR held the majority of KRONES AG's shares, with 52.2%. The family intends to remain a stable majority shareholder of KRONES AG. The free float came to 47.8% at the end of 2020.

KRONES' long-term dividend policy is to pay out 25% to 30% of consolidated net income to shareholders. Due to the negative net income, the Executive Board and Supervisory Board will propose to the Annual General Meeting on 17 May 2021 that only the statutory minimum dividend of 4% of the share capital, and thus a total of €1.9 million or 6 Cent per share, be distributed for the 2020 finan-cial year and that the remaining earnings available for distribution from the 2020 financial year be carried forward.

Dividend per share ( )

.

.

.

.

.

.

.

.

.

* As per proposal for the appropriation of earnings available for distribution

.

*

2

ConsoLIDATeD mAnAgemenT rePorT

Fundamental information about the group

Kronesataglance ................................................................ 35

2020inreview ..................................................................... 38

Systems and lifecycle service - performance matters . . . . . . . . . . . . . . . . . . . 42

Strategyandmanagementsystem ........................................... 45

Researchanddevelopment(r&D) ............................................. 53

Report on economic position

Economicenvironment .......................................................... 58

Kronesinfigures .................................................................. 6769

Reportfromthesegments ......................................................

Overallassessmentofeconomicposition .................................. 83

Employees .......................................................................... 84

SustainabilityatKrones ........................................................ 85

Riskandopportunityreport ...................................................... 86

Eventsafterthereportingperiod ............................................... 97

Reportonexpecteddevelopments .............................................. 98

Takeover-relateddisclosures ..................................................... 102

Dependencyreport ................................................................ 105

Remuneration report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

ManageMent RepoRt Fundamental Information about the group

Krones at a glance

KRONES at a glance

Business model, business areas and organisational structure

KRONES provides machinery and systems for bot-tling and packaging and for beverage production. Innovative digitalisation and intralogistics solu-tions round out our portfolio. KRONES' customers include breweries, beverage producers and compa-nies from the food, chemical, pharmaceutical and cosmetic industries. Services are an important part of KRONES' business model. The company main-tains service centres and offices around the world.

KRONES reports on two segments: Machines and Lines for Product Filling and Decoration and Machines and Lines for Beverage Production/Process Technol-ogy. The Machines and Lines for the Compact Class segment, which was reported on separately until 2017, was made part of KRONES' core segment Machines and Lines for Product Filling and Decoration with effect from 1 January 2018.

Major markets and competitive position

Customers in the beverage industry account for most of KRONES' revenue. The remaining revenue comes from business in non-beverage sectors (food, dairy, chemicals, pharmaceuticals, and cosmetics).

KRONES is heavily export-oriented, generating almost 90% of consolidated revenue outside Ger-many. The regional breakdown of revenue is well balanced overall. In the reporting period, KRONES generated 49.8% of its revenue in industrialised countries and 50.2% in the rapidly growing emerg-ing markets.

group share of consolidated revenue

Apart from a few large companies that are part of a corporate group, KRONES competes with a number of companies that offer only individual bottling and packaging products. Most of our main competi-tors are based in the euro area. Chinese manufac-turers have primarily competed against KRONES for orders on their home market.

Backed by our global service portfolio, which en-ables us to provide fast service to customers on-site, KRONES is well positioned in the competitive arena as a full-service provider.

ManageMent RepoRt Fundamental Information about the group

Krones at a glance

Machines and Lines for Product Filling and Decoration

This is by far Krones' largest segment. It offers machines and lines for filling, labelling, packaging, and conveying products. Machines and lines for producing PeT containers and converting used plastic bottles into food-grade recycled material (PeT recy-cling systems) are also part of this segment.

See also Segment report, pages 79 and 134.

Revenue (€ million)

,*

,,,*

,

* incl. Machines and Lines for the Compact Class

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

2020	2019
eBITDA (€ million)	171.5	218.5
eBITDA margin (%)	6.1	6.7

ManageMent RepoRt Fundamental Information about the group

Krones at a glance

Machines and Lines for Beverage Production/Process technology

This Krones segment supplies customers with machines and lines for producing and processing beer, soft drinks, fruit juices, milk, and dairy drinks. The segment also includes all digitalisation activities developed by Krones for the entire beverage industry. Beverage Production/Process Technology also includes the intra-logistics business under subsidiary sYsTem LogIsTICs together with evogUArD brand components.

Brewhouse and filtration technology

Digitalisation

Information technology

Intralogistics

See also Segment report, pages 87 and 134.

Revenue (€ million)

.

.

.

.

.

2020	2019
eBITDA (€ million)	- 38.3	8.8
eBITDA margin (%)	- 7.3	1.3

ManageMent RepoRt Fundamental Information about the group 2020 in review

First quarter 2020

The first quarter saw the worldwide spread of the coronavirus. KRONES took fast action to protect em-ployees and customers. The company also assumed social responsibility. For example, KRONES pro-duced and donated 400,000 PET bottles and had them filled with disinfectant. The bottles were then sent to various medical facilities.

The impact of the corona crisis on revenue was still limited in the first quarter of 2020. Revenue was down 4.2% year-on-year to €942.0 million. There was a larger impact on order intake, which fell by 19.3% to €841.1 million. Partly because of initial re-sults from structural measures adopted by KRONES, EBITDA went up, despite the revenue shortfall, by 4.1% to €89.5 million.

The corona crisis triggered a sharp fall on the equity markets during March. This also affected our share price. KRONES shares were still rising at the beginning of the year. The share price reached €75.50 on 24 January, 11.9% higher than at the start of 2020. Our shares held steady above the €70 mark through to mid-February. In March, KRONES was caught up in the general downward spiral on the stock markets. At the end of first quarter of 2020, the KRONES share price stood at €48.78. This was 27.7% down on the beginning of the year. The SDAX showed a first-quarter loss of 26.1%.

ManageMent RepoRt Fundamental Information about the group 2020 in review

Second quarter 2020

The KRONES Annual General Meeting was held in Neutraubling on 18 May. For the first time, it took place as an entirely virtual meeting due to the Covid-19 pandemic. Attendance - the proportion of the company's share capital represented at the on-line general meeting - was around 77%. All agenda items submitted for voting were adopted by share-holders with a large majority. Shareholders were paid a dividend of €0.75 for 2019.

As expected, economic consequences of the corona crisis had a major impact on KRONES' business in the second quarter. Revenue dropped by 16.5% year-on-year to €756.6 million. The general economic uncer-tainties also affected investment confidence among customers. In the second quarter, order intake fell by 38.2% to €616.2 million. The structural measures ad-opted by KRONES in the second half of 2019 had a positive impact on profitability. EBITDA fell less steeply than revenue, from €30.9 million to €29.0 million.

The stock markets recovered their large first-quarter losses between April and June. Massive liquidity sup-port from central banks and large government eco-nomic stimulus programmes fuelled a turnaround. The KRONES share price rose in the second quarter by 17.1% to €57.10.

ManageMent RepoRt Fundamental Information about the group 2020 in review

Third quarter 2020

On 25 August, KRONES and its subsidiary DEKRON won the German Packaging Award in the Sustain-ability category. The award was conferred for a plas-tic bottle made of 100% recycled PET and labelled with digital direct printing. The ink used dissolves without residue during the recycling process. The technologies for producing, labelling and recycling such bottles are already available from KRONES and DEKRON as series products.

KRONES' business stabilised in the third quarter. While revenue dropped by 25.0% year-on-year to €750.4 million, order intake recovered significantly compared with the weak second quarter. At €843.6 million, the contract value of orders was 37% higher in the third quarter than in the preceding quarter. Although EBITDA suffered from the reduced capac-ity utilisation due to corona, cost savings limited the fall in earnings from €47.4 million in the previ-ous year to €28.8 million. The KRONES share price did not fluctuate as strongly in the third quarter as it had in the first half of the year. The general mar-ket also went sideways overall between July andSeptember. At the end of the quarter, KRONES shares stood at €52.95, down 21.6% on the beginning of the

year. Including the dividend, the share price was 55.45 down by 20.4%.

ManageMent RepoRt Fundamental Information about the group 2020 in review

Fourth quarter 2020

Following the third-quarter recovery, KRONES' order situation further improved in the fourth quarter. Orders worth €1,006.1 million came in between October and December. Order intake was thus 10.6% down on the previous year, but 19.3% higher than in the third quarter of 2020. KRONES' revenue was €873.7 million in the fourth quarter, generating EBITDA of -€14.1 million. Excluding expenses for structural measures, EBITDA came to €58 million.

KRONES pursues ambitious climate targets. At the end of 2020, the company adopted a new climate strategy. Among other things, this includes a com-prehensive package of measures to reduce Group-wide greenhouse gas emissions. KRONES aims to re-duce its own operational (Scope 1 and 2) emissions by 80% between 2019 and 2030. In parallel, emis-sions in the upstream and downstream value chain (Scope 3) are to be reduced by 25%, with a particular focus on the carbon footprint of our machines and lines while in use by customers.

The KRONES share price rose sharply again follow-ing publication of the nine-month figures at the beginning of November and the Capital Market Day on 12 November. Overall, the share price rose by almost 25% during the fourth quarter compared with the end of September. At the end of the year, the KRONES share price stood at €66.05. This put our share price just 2.1% below the €67.50 start-of-year opening price.

1 | To oUr sHAreHoLDers

2 | ConsoLIDATeD mAnAgemenT rePorT Fundamental Information about the group

3 | CorPorATe governAnCe

Systems and Lifecycle Service - performance matters

4 | ConsoLIDATeD fInAnCIAL sTATemenTs

Systems and Lifecycle Service - performance matters

Krones delivers turnkey plants to the beverage and liquid food industry. We use our expertise to keep our customers' investment and operating costs low. Of equal importance, we enable our customers to produce reliably and at high quality.

We deliver all of the machines and lines necessary for producing, filling and packaging beverages. We also provide complete logistics systems, supply and disposal systems and custom IT and digitalisation solutions that manage and document all production processes.

5 | noTes To THe ConsoLIDATeD fInAnCIAL sTATemenTs

6 | oTHer InformATIon

In addition, we support our customers with excellent, 24/7 after-sales service. That is crucial to ensuring that beverage plants deliver consistently high performance. Krones' lifecycle service (LCs) experts are not just service providers - they are partners to our customers. Together, we find solutions for efficient, secure, reliable and cost-effective production. As well as providing optimum maintenance and retrofitting, our LCs team offer expert consulting as Partners for Performance.

The following models of a complete beverage plant provide a brief overview of our offerings.

ManageMent RepoRt Fundamental Information about the group

Systems and Lifecycle Service - performance matters

• 1 Malt Handling

• 2 Brewhouse

• 3 Yeast-/Filter Cellar

• 4 Tankfarm

• 5 Utilities (Compressed Air, Refrigeration Plant, Co2-Recovery Plant, …)

• 6 Utilities

  (Boiler Plant, CHP-Plant, …)

• 7 Bottling and Packaging Area

• 8 Main Gate

• 9 Administration

ManageMent RepoRt Fundamental Information about the group

Systems and Lifecycle Service - performance mattersVariopac Pro: packer for non-returnable containersModulpal Pro: pallet loaderFlowliner: container spacerContiflow: beverage mixer and carbonatorSystem Logistics Agv: automated guided vehicleVarioFlash: product pasteuriserVarioClean: clea-ning-in-place (CIP) system for filler, flash pasteuriser, mixed, piping and tanks

ErgoBloc L: wet section block for stretch blow moulding, labelling, filling and closing containersCheckmat: inspects filled and labelled PET containers

ManageMent RepoRt Fundamental Information about the group

Strategy and management system

Strategy and management system

"Krones has two key tasks to accomplish: Mastering the crisis and, and the same time, shaping the future. I am confident that the measures we have adopted will secure Krones' future and com-petitiveness."

Christoph Klenk Ceo

The world has changed dramatically due to the Covid-19 pandemic. Not only did the many lock-downs cause a massive slump in the economy. The pandemic has also significantly changed ordering patterns among business customers and purchas-ing patterns among end consumers.

KRONES, too, is affected by this 'post-corona' world and will consequently adapt its strategy to the new circumstances in the years to come. To achieve this,the company must manage two key tasks. First of all, KRONES must master the currently still difficult economic situation to the best possible effect. This will secure our future. In parallel, we will think ahead to be prepared for the forthcoming recovery in our markets. With innovations and investments in growth, we are laying the basis for a successful future.

One of the most important findings of our autumn 2020 customer survey con-ducted by the Executive Board was this: Aſter a phase of holding back on invest-ment, the food and beverage industry will return to growth. In the medium and long term, many megatrends point to sustained growth in the filling and pack-aging market. Global population growth will persist, the middle class in emerg-ing economies will keep on growing and urbanisation will continue.

Cost-cutting measures are working - and have to continue

But first of all, suitable measures are needed to mitigate the corona-related drop in demand. Customers clearly indicated that their investment will not yet regain 2019 levels in 2021 and 2022. We are therefore adjusting capacity to the lower business volume in the short and medium term.

The reduction in the workforce decided on in autumn 2020 is just one of many necessary measures. On the positive side, the cost-cutting measures outlined here last year are taking effect. We will continue to implement these. They in-clude simplifying structures and processes, optimising production costs, reduc-ing material costs and adjustments to our product portfolio. During the report-ing period, we made good progress with the spin-off of the brewery activities (STEINECKER) and will now take various measures in the current year to improve profitability in this business.

We also continue to place strong focus on expanding our global value chain. This allows us to make better use of regional resources and makes us less vul-nerable to protectionist trade restrictions.

ManageMent RepoRt Fundamental Information about the group

Strategy and management system

Hochheim/Main

Bodegraven Bolton London Louvain-la-Neuve Neutraubling Buttwil

Lyon Bacarena Madrid Castellon CasablancaBarcelona Viviers du Lac Zurich

Dakar

Fiorano Modenese Roverbella

Lagos

Luanda

Cape TownEngineering locationsProduction locations

--˜™š› subsidiaries and representative offices

Krones' strong presence on all continents means the company can better exploit opportunities for fur-ther growth and cost optimisation. Its global footprint also makes Krones less vulnerable to protec-tionist trade practices.

ManageMent RepoRt Fundamental Information about the group

Strategy and management system

With a few months' delay due to corona, production started in 2020 at our new site in Debrecen, Hungary. The plant will be fully operational by mid-2021 - pro-vided that the further course of the corona pandemic allows - and will lead to cost savings this year. From 2022, the annual cost savings will be around €20 million.

To better manage demand fluctuations in the medium term, the company will adjust the degree of value added in-house. This enables KRONES to make its costs more flexible, and to focus internal resources on its core competencies.

All of these measures serve to secure KRONES' international competitiveness.

The cost savings are necessary so that we have sufficient latitude for future invest-ment and further growth.

Post-Covid era offers opportunities for growth - clear focus on core competencies

The global economic impact and changes caused by the coronavirus are enor-mous. But the worst is presumably behind us, and life and the economy will 'normalise' again aſter the pandemic.

Many experts expect our market to recover strongly till 2025. It will benefit from the ongoing, intact megatrends in emerging markets, and also from mas-sive stimulus programmes in industrialised economies. In order to make the best possible use of the opportunities in our market following the corona pan-demic, we will focus in future even more strongly on our core competencies of sales, engineering, final assembly, life cycle service and digitalisation. We also plan to use these core competencies to open up new markets.

Digitalisation to accelerate

KRONES sees major opportunities above all in the field of digitalisation, where it employs over 300 soſt-ware engineers and IT specialists. The focus in all dig-ital innovations is on adding value to our products.

Over 300 employees work exclusively on the digitalisa-tion of our filling and pack-aging lines.

Customers increasingly expect our machines and lines to reduce their operat-ing and labour costs. The digitalisation of the beverage plant plays a key role here. This means making our filling and packaging lines smarter. In this way, we can further enhance system availability and increase automation. Predic-tive maintenance and rapid troubleshooting are a further element. Our aim is to provide customers with digital tools and services on a single platform that enables integrated control of the entire line from process technology to instru-mentation and control systems, including all production data, and all the way through to soſtware solutions. To achieve this goal, we will continue to increase investment in the digitalisation of our machines and lines.

Intralogistics a key part of the krones portfolio

One important pillar in the KRONES portfolio is intralogistics. This will acceler-ate digitalisation in beverage plants by ensuring an optimum flow of materials and data. Intralogistics itself will also benefit from market changes highlighted by Covid-19. These include faster delivery, greater automation and increased online ordering. With SYSTEm LOGISTICS, KRONES is ideally equipped to meet changing customer requirements. We will expand intralogistics - which is de-livering above-average growth - as a strategically important pillar in the House of KRONES, and further improve profitability.

ManageMent RepoRt Fundamental Information about the group

Strategy and management system

Sustainable PeT solutions are major growth drivers

Another key finding from the customer survey was that the beverage industry wants to actively address the plastic waste problem. A core component of this is the recycling of plastics, and most of all PET. Going beyond official targets - in the Eu, recycled PET (rPET) is to account for at least 25% of the market by 2025 - many customers have adopted even more ambitious targets of their own. In some cases they aim for a 50% rPET share by 2025. KRONES expects that by 2030, on average, rPET will account for 50% of PET packaging worldwide. That creates opportunities that we will make use of.

With its various Metapure lines, KRONES has already provided high-quality recycling solutions for true bottle-to-bottle recycling for many years. KRONES plans to expand this still relatively small business within the group in the years ahead, in order to tap into the rising demand for recycling lines. This will not produce a significant jump in revenue over the short to medium term, however, because of the long project lead times.

Although rPET is chemically identical to virgin PET, there are differences in pro-cessing. KRONES possesses comprehensive expertise in all facets of manufac-turing and processing rPET containers. It will support customers in refitting their production lines for the circular economy of the future. In addition, by 2025, all new KRONES PET filling lines will be able to process up to 100% rPET.

Consumers

Our bottles have a

New products

sustainable life cycle

packaging

Raw material

production	Facility
• Single fraction	• Single fraction
• Washed	• Baled
• Processed to
flakes/granulate

Plastic waste

ManageMent RepoRt Fundamental Information about the group

Strategy and management system

Co2 reduction a clear goal of krones customers

A further important concern for our customers alongside resource-conserving PET recycling is reducing CO2. KRONES has set itself the ambitious target for the ecoefficiency of the machines and lines it produces to reduce the carbon foot-print in the upstream and downstream value chain at the customer (Scope 3 emissions) by 25% from 2019 to 2030. We are ideally placed to achieve this goal. As long ago as 2008, KRONES launched the enviro sustainability programme with the focus on conserving resources and increasing the energy efficiency of our machines and lines. KRONES was ahead of its time with enviro and is now in a very good position. Further information on our sustainability efforts can be found in the R&D section on p. 54 and 55. In addition, we have set ourselves the target of an 80% reduction in our own (Scope 1 and 2) CO2 emissions by 2030.

Internationalisation increases customer satisfaction and reduces risks

The travel restrictions during the corona pandemic show the importance of local presence for KRONES in the world's regions. Growing trade conflicts, too, underpin our efforts to expand our global production, sales and above all service network. The rapidly growing African and Asian markets are particu-larly important here. KRONES will continue to expand its workforce and local presence in these emerging markets. The closer KRONES is to customers with its team, the faster it can meet their requirements and increase customer satisfaction.

Selling prices to recover in the medium term

The corona crisis and the resulting weakness in demand put pressure on selling prices in the reporting period. KRONES focused on maintaining a good balance between capacity utilisation and price quality. This year, the company expects prices to remain stable compared to 2020 due to a projected slight increase in demand. In subsequent years, more rapid market growth should be reflected in rising prices.

Innovation secures the company's future growth

For the long term, price quality will also be supported by innovations. These must provide customers with clear and measurable added value in terms of costs, versatility, environmental compatibility, and product and production safety and reliability. An example is equipment that enhances the sustainability of packaging. The greater the benefit for customers, the more willing they will be to accept higher prices. Digitalisation especially harbours major potential for adding value. We showcase a selection of our innovations from the reporting period on pages 56 and 57.

The workforce is the decisive factor in the company's success

The decision to cut several hundred jobs was not easy for either the Executive Board or the Supervisory Board. Most of all because of the many years and de-cades of outstanding work delivered by our employ-

Krones adjusted workforce capacity to the significantly lower demand in the repor-ting period.

ees. We nevertheless had to adjust workforce capacity so as not to put the future of the company at risk. These measures in no way diminish our appreci-ation of the workforce. The Executive Board knows the huge importance of the employees for the company's success. It is they who ensure that customers are satisfied with KRONES products and services.

ManageMent RepoRt Fundamental Information about the group

Strategy and management system

Employees in the emerging markets 2016 - 2020

Year	South America	Africa	Asia-Pacific	CIs/Eastern Europe	China	Total
2016	549	386	602	155	508	2,200
2017	581	393	734	398	608	2,714
2018	637	452	830	507	716	3,142
2019	782	671	1,009	933	792	4,187
2020	778	639	974	922	742	4,055

Looking to the future, we continue to need motivated and dedicated employees. KRONES will continue to invest above-average in training and employee devel-opment. These remain the basis for our future expertise and KRONES' long-term viability.

Stable financial and capital structure

In a crisis, it is of paramount importance to have sufficient liquidity. KRONES continued to do so throughout the difficult 2020 financial year. The company maintained liquidity reserves of around €1 billion for almost the entire year. This meant that the group retained its capacity for action at all times and had enough reserves to survive a prolonged downturn. At the end of 2020, KRONES even had a net cash position of some €185 million. Combined with a very solid equity ratio of 39.4%, this adds up to a stable financial and capital structure. This gives the company sufficient financial headroom both to invest in growth and the future and to accord shareholders their due share of the company's suc-cess in the form of dividends. KRONES' dividend strategy is to pay out 25% to 30% of consolidated net income to shareholders.

Strong focus on working capital and free cash flow

KRONES generated a positive free cash flow of €221.3 million in the reporting period. That is a good outcome considering the difficult year in 2020. Going for-ward, we will further improve free cash flow in order to strengthen our capital base and internal financing capability.

The most important parameter here is lower work-ing capital. In 2020, average working capital over the past four quarters as a percentage of revenue stood at 28.3% which is some way from our medi-

Krones aims to significantly reduce the working capital to revenue ratio in the years ahead and so improve free cash flow.

um-term target of 24% to 26%. Less capital tied up in the operating business means more capital for other purposes. For each per-centage point by which we lower this ratio, our free cash flow and therefore our available resources grow by around €35 million.

The main burden on working capital is the high level of customer receivables. Among measures to reduce these, KRONES will shorten the timespan from delivery to invoicing. To this end, on-site assembly and acceptance are to be completed sooner. Using a variety of other measures, it is planned for trade receivables to grow below average in the next few years relative to revenue. Centralising inventory management and the supplier financing programme launched in the final quarter of 2020 will have further positive impacts on working capital.

ManageMent RepoRt Fundamental Information about the group

Strategy and management system

Capital expenditure to settle at a lower level

A further important factor in free cash flow is capital expenditure on property, plant and equipment. KRONES invested heavily in expanding its global foot-print in 2018 (3.2% of revenue) and 2019 (2.7%). For the reporting period, this fig-ure was a very low 1.7% of revenue. In the years ahead, capital expenditure will settle in a band between 2% and 3% of revenue. No acquisitions are currently planned. However, we always retain the capability to act on attractive acquisi-tion opportunities should they arise.

Medium-term targets to be attained by 2023

Despite the corona crisis, KRONES has not lost sight of its ambitious medi-um-term financial targets and continues to adhere to them. In order to exploit the opportunities available in our market and to maintain sufficient headroom for investment, we aim to deliver the following:

• " 2% to 5% average organic revenue growth per year

• " 9% to 12% EBITDA margin (corresponding to an EBT margin of 6% to 8%)

• " 24% to 26% working capital to revenue ratio

Mid-term targets

Revenue growth - %

margin - %

Working capital to revenue - %

KRONES has made a slight upward adjustment to the third target. Previously, the target for the working capital to revenue ratio was 22% to 24%.

The timeframe for target attainment has been pushed back by the Covid-19 pandemic. Provided there are no new economic, health or political crises, KRONES aims to attain the targets by 2023.

ManageMent RepoRt Fundamental Information about the group

Strategy and management system

krones' management system

KRONES' management primarily uses the following financial performance indicators to steer the group and its two segments:

• " Revenue growth

• " EBITDA margin (earnings before interest, taxes, depreciation and amortisation as a percentage of revenue)

• " Working capital as a percentage of revenue

In order to strengthen our market position and utilise economies of scale, we aim in the medium-term to achieve further revenue growth.

Earnings before interest, taxes, depreciation and amortisation (EBITDA) is a key earnings performance indicator. Profitability, measured as the EBITDA margin (EBITDA as a percentage of revenue) is among our key targets and parameters. The EBITDA margin indicates the company's profitability in relation to revenue, irrespective of the tax rate, financial income/expense and depreciation and amortisation. For the group, we set the target margin as the weighted average of the two segments.

Our third major performance indicator is working capital to revenue, which is calculated at group level. Working capital is calculated as follows: (invento-ries + trade receivables + contract assets) - (trade payables + contract liabilities). This figure indicates how much working capital is needed to finance revenue generation. The lower the number, the less capital is tied up in operations and the more financial leeway the company has to use its cash resources for other purposes.

Other financial key performance figures

In addition to the above, a further important performance indicator for KRONES is free cash flow (cash flow from operating activities less cash flow from invest-ing activities). We take further guidance from the development of EBT (earnings before taxes) and ROCE (return on capital employed, the ratio of EBIT to average capital employed).

ManageMent RepoRt Fundamental Information about the groupResearch and development (r&D)

Research and development (R&D)

• " 5.0% of revenue invested in r&D despite the corona crisis

• " Customer survey confirms krones r&D strategy

• " Increased focus on sustainability and the climate

• " Huge opportunities in the digital beverage plant

In economically difficult times, cutting costs is usually high on the agenda - and KRONES is no exception. At KRONES, however, we see research and develop-ment expenditure less as a cost category and more as an investment in our company's future. That is best demonstrated by the fact that even in 2020, an extremely challenging year, we invested €168 million (previous year: €195 mil-

Krones invested 5.0% of consolidated revenue in research and develop-ment in 2020.

lion) or 5.0% of consolidated revenue (previous year: 4.9%) in research and development. €23.7 million of this was capitalised as development costs in the report-ing period (previous year: €32.5 million).

Registered patents and utility models -

Group

KRONES' innovativeness is also reflected in the number of patents and utility models granted, which rose to 6,108 at the end of 2020 (previous year: 5,877). Some 2,300 highly qualified people at KRONES in the reporting year worked to keep the pipeline filled with new and evolving machines, systems and services. All innovations focus squarely on customer benefit. New products and services must create added value for customers and deliver incentives to invest. The higher the savings to customers, the better the prices obtainable for KRONES.

Customers' basic needs unaltered after Covid-19

A wide-ranging customer survey conducted by the KRONES Executive Board in the autumn of 2020 confirmed KRONES' R&D strategy. The beverage industry continues to focus on costs, flexibility, digitalisation and sustainability. In terms of costs, aſter companies temporarily paused major new investment due to the economic uncertainties in the wake of the corona crisis, attention is now increasingly returning to operating costs. The Covid pandemic has also in-creased the need for automation in beverage plants.

Digitalisation a major source of opportunities for krones

The Covid-19 pandemic has significantly accelerated the trend to digitalisation in almost all areas of life, including in the food and beverage industry. This was confirmed by our customer survey. Greater automation and thus a smaller workforce in beverage plants are a key goal for our customers. KRONES will therefore continue to invest heavily in digitisation.

ManageMent RepoRt Fundamental Information about the groupResearch and development (r&D)

Our soſtware engineers and IT specialists work on digital solutions that create measurable added value for customers. These include our Connected Line, which enables us to completely digitalise filling machines and lines, ranging from smart commissioning to remote support by online link to the service centre.

KRONES' prime focus in digitalisation is on filling and packaging lines. Our aim here is to offer our customers maximum scope for optimisation and cost savings in production.

In a first step, in the KRONES Ecosystem, we are creating the basis for inte-grating all machines in a line and collecting and analysing machine data. Inferences are drawn from the data using artificial intelligence. This in turn en-ables us to develop new digital services that we make available to operators of KRONES lines on Share2Act, our proprietary industrial Internet of Things (IIoT). Line operators will have access in future to custom-tailored soſtware packages under service level agreements.

End-to-end data tracking and analysis not only benefit our customers in pro-duction. These functions also help KRONES right from the installation stage. They accelerate and simplify installation, thus reducing the time and human resources needed on site for commissioning. Because the lines are digitally con-nected, KRONES can also service them remotely. The digital functionality also has a positive impact on service, maintenance and troubleshooting. Production downtime is largely avoided.

In a second step, once customers' lines are integrated into the KRONES Eco-system, they can be controlled and tracked directly via the IIoT platform.

But digitalisation is not only about connectedness. KRONES is also improving the performance of existing systems with the aid of artificial intelligence (AI). The new Linatronic AI empty-bottle inspector, for example, incorporates an AI-based deep algorithm that substantially reduces the number of falsely rejected bottles (see p. 56).

Value drivers in the krones r&D strategy

Based on numerous discussions with customers, we have identified four areas where KRONES can create sustained added value with innovative products and services in the food and beverage industry. The four value drivers in KRONES' R&D strategy are

• " Product and production safety

• " Cost-efficiency

• " Flexibility

• " Sustainability

Increasing importance of sustainability and climate action

Our customer survey has also shown that customers continue to pursue a clear, medium-to-long-term plan under which protecting the climate and the envi-ronment have gained significantly in importance. Many major customers have adopted ambitious climate targets for the next five to ten years. But they also want to retain the advantages of PET packaging (weight, stability, flexibility and cost), and this places their focus on increasing the use of recycled PET. KRONES has been advancing the development of sustainable packaging solutions and recycling for many years.

ManageMent RepoRt Fundamental Information about the groupResearch and development (r&D)

Properly separated into grades, PET is almost infinitely recyclable. With its various Metapure lines, KRONES offers high-quality recycling solutions for true bottle-to-bottle recycling. KRONES will continue to invest heavily in recycling technology, both for PET and for other plastics, in order to provide customers with sustainable and commercially attractive packaging solutions.

enviro reduces customers' resource use

A further core element of the sustainability-oriented R&D strategy is enviro, a sustainability programme launched as long ago as 2008. The objective of enviro is to reduce energy and media consumption on our machines and lines. It is an integral part of the product development process at KRONES. As a result, all new KRONES machines and systems are above average in efficiency and environmental performance.

The enviro programme has systematically improved the energy efficiency of KRONES products for many years and has already led to substantial savings for customers. KRONES has nevertheless set itself the ambitious goal of reducing customers' energy consumption by a further 25% between 2020 and 2030 as a result of the eco-efficiency of its machines and lines.

The internally recognised CSR platform EcoVadis awarded KRONES a gold medal in 2020 for ranking among the best two percent of its sector worldwide.

krones products stand out for flexibility and quality

New products must also deliver a high degree of flexibility for customers. They must be able to switch quickly and easily between beverages and between different types and shapes of packaging. Customers can then better respond to rapidly changing customer needs and profitably produce small batch sizes. In the Bottling on Demand concept study, KRONES showed that the pilot plant could even theoretically produce a batch size of one. KRONES innovations must also be designed for easy upgrading and expansion, including with third-party products.

KRONES stands for quality in product and production safety. This is particularly evident in products for sensitive aseptic filling, which demands the highest standards of both hygiene and reliability. An example is Contipure AseptBloc DN (see page 57), a completely aseptic filling line for highly sensitive beverages. With this product, KRONES even meets the strict requirements of the u.S. Food and Drug Administration (FDA). KRONES plans to further extend its technology leadership in aseptic products for PET.

Expansion of the glass and cans portfolio

In anticipation of the long-term decline in demand for PET packaging, KRONES is both carrying out research into new types of packaging materials and inno-vating to expand its glass and cans portfolio. One example is an upgrade of the Modulfill Bloc FS-C can filler with a special hygiene concept (see page 57) that builds on KRONES' experience in aseptic filling of PET bottles. KRONES will con-tinue to expand and reinforce its glass and cans portfolio with innovations.

ManageMent RepoRt Fundamental Information about the groupResearch and development (r&D)

A selection of our innovations

LitePac Top: a sustainable solution for cans

Packs of cans are oſten held together with plastic rings or shrink-wrap. KRONES offers an eco-friendly and sustainable alternative with LitePac Top. This adhe-sive-free cardboard packaging is made from regenerative resources and can be easily recycled aſter use. LitePac Top is simple and effective. It fits underneath the can seam, thus keeping the pack stable. Conveniently placed holes in the cardboard make the pack easy to pick up and carry.

A can is removed by simply sliding it up and out. There is no need to tear the cardboard. KRONES provides a matching Varioline packaging machine for pack-ing cans with LitePac Top. The sustainable packaging concept can also be used with disposable PET bottles.

Linatronic AI: using artificial intelligence to cut down on waste material

Empty-bottle inspection machines are already relatively accurate. Nevertheless, they oſten err on the side of caution and falsely reject a bottle that is undam-aged and uncontaminated. This is usually only a matter of water droplets or a bit of foam still clinging to the bottle. To make the Linatronic inspector even better at its task, KRONES makes use of artificial intelligence.

The machine and its soſtware were trained with thousands of sample images until it was able to detect and interpret all relevant image characteristics. This enables Linatronic AI to tell water droplets apart from other anomalies on a bottle with a reliability of more than 99.9%, thus significantly reducing the amount of material wasted.

ManageMent RepoRt Fundamental Information about the groupResearch and development (r&D)

Modulfill Bloc Fs-C: new hygiene standard for cans

KRONES has long held a leading position in lines for the aseptic filling of sensi-tive beverages such as teas and juices in PET containers. To meet growing cus-tomer demand for aseptic can fillers, KRONES has developed a custom hygiene concept for Modulfill Bloc FS-C. Positive pressure inside the filler prevents ambi-ent air from introducing germs into the filler itself and coming into contact with the product.

The new hygiene concept also shrinks the floor footprint of the can block by 35% compared with systems that have a freestanding machine guard. Keeping the closed filling and sealing area as small as possible also reduces cleaning times and the required quantities of air, cleaning agent and filters.

Contipure AseptBloc Dn: beating the industry standard

Contipure AseptBloc DN, comprising a preform sterilisation module and an aseptic blow moulder, filler and capper, fills sensitive beverages such as fruit juices and milk with microbiological safety.

Contipure AseptBloc DN is certified by both the u.S. FDA and the independent 3-A Sanitary Standard institute. 3-A certification is extremely important for the North American market in order to be able to fill dairy products within the cold chain.

1 | to ouR shaReholdeRs	2 | Consolidated	3 | deClaRation on	4 | Consolidated	5 | notes to the Consolidated
ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents	FinanCial stateMents

Economic environment

• " Global economy slumped by 3.5% in 2020 due to corona pandemic

• " Extremely difficult conditions for German mechanical engineering

• " Slight fall in global demand for packaged beverages

Global economy hit by corona - but not as hard as expected

The global economy was heavily impacted in 2020 by the corona pandemic. Particularly in the first half of the year, strict lockdowns led to a massive slump in economic activity worldwide. According to January 2021 data from the Inter-national Monetary Fund (ImF), global gross domestic product (GDP) fell by 3.5% in 2020 (2019: +2.8%). Mid-year, the ImF forecast had stood at -4.9%. A dynamic recovery in the second half reduced the year-on-year shortfall.

The economic slowdown in mature industrialised nations was sharper than the global average. Economic output there contracted by 4.9% overall (previous

growth rate by region (%)

year: +1.6%). The economy within the euro area was hit particularly hard by the Covid-19 pandemic. GDP in the common currency area fell by 7.2% in 2020, compared to a 1.3% increase in the previous year. The world's largest economy, the uSA, came through the crisis relatively well. GDP there 'only' dropped by 3.4% in the reporting period (previous year: +2.2%). Japan's economy was 5.1% down in 2020 (previous year: +0.3%).

€

'

€.‡

Economic output in emerging and developing countries dropped less sharply over the reporting period. GDP there fell by 2.4% in 2020 (2019: +3.6%). Accord-ing to ImF experts, this is mainly due to the positive trend in China. As the year progressed, the Chinese economy had the strongest recovery from the first and second-quarter downturn. China is thus the only major economy to record growth in 2020, with an increase of 2.3% (previous year: 6.0%). The main reason is that the world's most populous country quickly came to grips with the pan-demic. This was not the case in India. The economy there consequently suffered badly from the corona crisis, with an 8.0% plunge in GDP (previous year: +4.2%). Latin American countries were also hit hard by the Covid-19 pandemic. Eco-nomic output in this region fell by 7.4% (previous year: +0.2%). The GDP de-crease in the Middle East/Central Asia region was 3.2% in the reporting year (previous year: +1.4%). Economic activity in the Sub-Saharan Africa region also declined. GDP there decreased by 2.6% in 2020 (previous year: +3.2%).

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German economy contracts by 4.9% in 2020

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Compared to the rest of Europe (euro area: minus 7.2 %), the German economy more or less held its own in the year under review. According to preliminary figures from Germany's Federal Statistical Office, German GDP fell by 4.9% rela-tive to the previous year. Aſter a ten-year period of growth, the 2020 crisis year saw the German economy slide into a recession similar to that experienced during the financial and economic crisis of 2008/2009 (GDP 2009: -5.7%).

Euro AreaJapanChinaIndiaLatin AmericaMiddle EastSub-Saharan Africa

2 | Consolidated	3 | deClaRation on	4 | Consolidated	5 | notes to the Consolidated
ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents	FinanCial stateMents

The corona pandemic leſt its mark on nearly every sector in 2020. While industry was hit by a partial disruption of supply chains in the first half year, many service sectors suffered in the lockdowns. The construction industry held up well during the crisis. The great beneficiary of the governments' corona measures was online retail.

Source: Germany's Federal Statistical Office

Machinery sector sharply down in 2020

Companies in the German machinery sector closed the crisis year in 2020 with substantial negative figures. These were not as large as had been expected in the interim, however. On preliminary data, the German Mechanical Engineer-ing Industry Association (VDmA) expects machinery and industrial equipment output to have decreased in value by 14% in 2020 relative to the previous year. The VDmA's original start-of-year forecast was for a 2% decline. The main reason for the sharp downturn was the corona pandemic with its negative impact on the global economy. In addition, the sector was adversely affected by increased protectionism and by structural change in the automotive industry, which is a

major source of demand. On a positive note, the machinery sector showed a relatively stable recovery trend in the third and fourth quarters of 2020, leaving the second-quarter low-point behind it.

Megatrends support stable market growth

The Covid-19 pandemic is also affecting demand for bottling and packaging equipment. However, this does not alter the good long-term growth prospects for KRONES' markets. This is because the megatrends driving above-average medium and long-term de-mand for food and beverage packaging machinery remain intact.

The rising global population, growth of the middle class and urbanisation are mega-trends that support the long-term growth of Krones' markets.

The overarching megatrend is global population growth. At the end of 2020, some 7.8 billion people inhabited the earth. According to United Nations fore-casts, that number is increasing at a rate of more than 70 million each year. Population growth is especially strong in Africa and Asia. The world's popula-tion is expected to reach about 8.5 billion by 2030. All those people need to eat and drink. And, increasingly, they are opting for packaged beverages and foods. This is supported by two other megatrends, which are the growing middle class and increasing urbanisation.

Growing middle class increases consumer spending

According to data from the United Nations, the Covid-19 pandemic is causing global poverty to increase for the first time in decades. However, this is only likely to briefly interrupt the long-term trend of more and more people in emerging and developing economies escaping poverty and rising into the middle class. According to forecasts by the OECD, the middle class worldwide will grow from 3.2 billion people to 4.9 billion in the period from 2020 to 2030.

Asia's share of global middle class consumption is growing rapidly

2 | Consolidated	3 | deClaRation on	4 | Consolidated
ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents
Urban population in

and

(% of total)

Rapidly increasing numbers of people are moving up into the middle classes,The trend towards urbanisation is strongest in Africa and Asia.

North America

especially in Asia. The region conse-quently accounts for a growing share of the world's rising middle-class con-sumer expenditure.

Asia %Europe

Central and South America Middle East/Nothern Africa

(expected)

. trillion

Source:

 (expected)

. trillion

Source: United Nations, (World Urbanization Prospects, TheRevision)

As incomes rise, so too does consumer spending - and that includes spending for packaged beverages and foods. Asia accounts for a large share of the growth of the middle class and the corresponding increase in buying power worldwide. The OECD predicts that Asia's share of total middle class consumer spending worldwide will be 42% by 2020. By 2030, that figure is expected to rise to 59%. Total consumer spending by the global middle class is likely to increase from uS$35 trillion to uS$55.7 trillion in that time.

Urbanisation is driving growth

Increasing urbanisation, the migration of people from rural areas to cities, also promotes demand for packaged food and beverages. That is because city-dwellers generally consume more packaged products than people who live in the countryside.

The United Nations forecasts that two out of three of the earth's inhabitants will live in cities by 2050. At present, only about half of the world's population lives in cities. The strongest influx of people into cities is in the developing and emerging market countries of Africa and Asia.

ManageMent RepoRt

Corona crisis slows global beverage consumption

In contrast to previous years, when global consumption of packaged beverages followed a steady upward trend, 2020 saw a decrease in consumption. This is due to the Covid-19 pandemic. The lockdowns and restrictions on the catering sector had a severe impact on beverage consumption in bars and restaurants. Global beer consumption thus fell by around 11% year-on-year (source: Global Data). According to preliminary figures from market research institute Global Data, global consumption of packaged beverages, at a total of 1,292 billion litres in 2020, was 5.4% down on the 1,366 billion litres a year earlier. Driven by the various megatrends, global beverage consumption is set to rise again in the medium and long term following the dip due to corona. For the period 2020 to 2023, however, Global Data's market researchers expect average annual growth of just 1.1%. The expected growth rates differ considerably between the individ-ual types of beverage.

Due to the megatrends, demand for packaged bever-ages is likely to rise again after the dip due to corona. Market researchers expect above-av-erage growth rates for bottled water and for milk and dairy drinks.

Consumption of bottled water is expected to in-crease significantly more rapidly than the overall market. By far the largest segment of the global beverage market, this is benefiting from growing demand for clean bottled drinking water in emerg-ing markets and from the health trend in industri-alised countries. The Global Data experts expectconsumption of bottled water to grow by an average of 3.8% a year from 2020 to 2023. Global consumption in 2020 was 450.5 billion litres (2019: 458.8 billion litres). Water accounts for 34.9% of all packaged beverage consumption.

Global Data forecasts that consumption of packaged alcoholic beverages, which are the second-largest market segment with an 18.9% share in 2020, will shrink in the years ahead. A key reason for this is that beer demand is saturated in many industrialised countries. According to Global Data, the consumption of packaged alcoholic beverages is expected to decline by an average of 1.8% a year between 2020 and 2023.

+ . % Prospects are better for the milk and dairy drinks segment (share of global beverage consumption in 2020: 18.1%). This is mainly due to high-growth prod-ucts such as yoghurt smoothies (expected average growth rate 2020-2023: 4.5%) and flavoured milk (+4.0%). Demand for plain milk, which accounts for around 70% of the market segment, is expected to grow on average by just 1.7% in the period 2020 to 2023. For the entire milk and dairy drinks segment, Global Data projects average annual growth rates of 2.2% from 2020 to 2023.

2 | Consolidated	3 | deClaRation on	4 | Consolidated	5 | notes to the Consolidated
ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents	FinanCial stateMents

Demand for carbonated soft drinks (CSDs) is expected to grow at a lower rate than the overall market over the next few years. People around the world con-sumed 211.9 billion litres of packaged CSDs in 2020 (previous year: 225.9 billion litres; share of total beverage consumption in 2020: 16.4%). Global Data expects consumption to shrink by an average of 1.4% per year through to 2023. This is mainly because of increasing health awareness among consumers, who in-creasingly quench their thirst with water instead of frequently sugar-contain-ing CSDs.

The two smaller segments of the beverage market, fruit and vegetable juices (share of total beverage consumption in 2020: 6.3%) and new drinks (5.5%) are following opposite trends. New drinks include ready-to-drink tea and coffee together with sports and energy drinks. Global Data's market researchers project average annual growth rates of 0.3% for new drinks from 2020 to 2023. Demand for fruit and vegetable juices is expected to fall by an average of 1.3% per year during the same period.

Growing demand for packaged beverages in emerging markets

In emerging and developing economies, Krones is bene-fiting from population growth and a growing mid-dle class. The growing diver-sity of beverages and pack-aging stimulate demand in mature industrial countries.

The strongest growth in global demand for pack-aged beverages comes from emerging and develop-ing economies. This is because it is in emerging and developing economies that the megatrends mainly play out - global population growth, a burgeoning middle class and urbanisation.

Global Data expects the strongest growth in China. Consumption of packaged beverages is anticipated to rise there by an annual average of 2.5% between 2020 and 2023. For the Africa/Middle East region, the experts forecast an aver-age annual growth rate of 1.9%. Beverage demand is also expected to grow at a similar rate in the Asia/Pacific region (+1.8%). Demand in mature markets such as Western Europe (+0.2%) and North and Central America (+0.3%) is expected to grow at a lower rate than the overall market (+1.1%). These are regions with low population growth. KRONES' growth opportunities in such markets there-fore relate not to rising beverage consumption, but to increasing diversity of beverages and packaging.

Worldwide consumption of packaged beverages*

Asia-Pacific China

North America/Central America South America

Western Europe Africa/Middle East Russia/CIS/Eastern Europe Central Europe Worldwide

*Rounding differences possible **Share of global consumption | (e) = expected

2020 (e) Billion litres %**	2023 (e) Billion litres %**	Average annual growth (%) 2020 - 2023
Asia-Pacific	283.3 21.9	298.9 22.4	1.8
China	241.5 18.7	260.2 19.5	2.5
North America/Central America	183.7 14.2	185.6 13.9	0.3
South America	172.0 13.3	170.4 12.8	- 0.3
Western Europe	137.2 10.6	137.9 10.3	0.2
Africa/Middle East	127.9 9.9	135.3 10.1	1.9
Russia/CIS/Eastern Europe	93.5 7.2	95.0 7.1	0.5
Central Europe	53.3 4.1	53.1 4.0	- 0.1
Worldwide	1,292.4 100.0	1,336.4 100.0	1.1

Sources: Global Data

Global consumption of packaged beverages by region: annual growth 2020-2023

1 | to ouR shaReholdeRs	2 | Consolidated	3 | deClaRation on	4 | Consolidated	5 | notes to the Consolidated
ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents	FinanCial stateMents
+ . %

ManageMent RepoRt

Global consumption of packaged beverages by region: billion litres*

Global consumption of packaged beverages by region: billion litres*

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Continued medium-term growth in the high-volume Chinese and Asia/Pacific markets.

China consumed 241.5 billion litres of packaged beverages in 2020. This is expected to be 18.7 billion li-tres more by 2023. Consumption in the Asia/Pacific region is projected to increase by 15.6 billion litres.

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(billion litres)

Sources: Global Data

2 | Consolidated	3 | deClaRation on	4 | Consolidated	5 | notes to the Consolidated
ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents	FinanCial stateMents

PeT remains the leading material for beverage containers

Almost one-third of the world's beverage containers are made of PeT. The de-mand for PeT containers continues to grow more rapidly than the overall market.

An important statistic for a provider of bottling and packaging equipment is the number of units filled. According to preliminary figures from Global Data, 1,738 billion containers were filled with beverages worldwide in 2020, which is 2.6% more than in 2019. The market researchers expect the number of unitsto increase by 2.1% per year on average to 1,852 billion by 2023. Most beverages are sold in plastic bottles, glass bottles, metal cans and paper-based cartons.

Global beverage market by packaging material in

(based on units filled)

Average annual growth of packaging types -

Cartons .­%

Sources: Global Data

GlassCartonsCans

Other

Polyethylene terephthalate (PET) plastic is by far the most frequently used pack-aging material for beverages. According to figures from Global Data, some 534 billion or over a third of all beverage containers were made of PET in 2020. This container type also continues to show the fastest growth. This is primarily be-

cause water - globally the most widely consumed beverage - is mainly sold in PET bottles. As water consumption rises, so does the number of PET containers filled. This is expected to growth by an average of 2.8% per year through to 2023.

The second most frequent packaging material for beverages is glass. Glass ac-counted for 23.4% of all beverage containers in 2020. Glass bottles are primarily used for beer and other alcoholic beverages - that is, beverages for which de-mand is largely saturated. In total, the number of beverage containers made of glass, with annual average growth of 1.0% from 2020 to 2023, is expected to grow less rapidly than the overall market.

According to Global Data, 18.4% of beverage containers in 2020 were metal cans. These are frequently used for beer, carbonated soſt drinks and energy drinks. The number of cans is expected to gain by an average of 2.6% per year through to 2023. A major reason for the above-average growth is that beer is increas-ingly filled in cans.

Paper-based cartons are a further significant packaging material for beverages. Cartons are mainly used to package milk, dairy drinks and fruit and vegetable juices. Global Data expects that the number of paper-based cartons (share of beverage packaging in 2020: 10.8%) will grow by an average of 1.0% per year through to 2023, which is less than the overall market.

As one of the leading providers of machines and lines for the production, filling and packaging of PET containers, KRONES benefits from the above-average growth in PET packaging. The company also has a strong market position in lines for filling and packaging beverages in glass bottles and cans. KRONES does not provide solutions for carton packaging.

2 | Consolidated	3 | deClaRation on	4 | Consolidated	5 | notes to the Consolidated
ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents	FinanCial stateMents

KRONES in figures

• " krones' consolidated revenue fell in 2020 as a result of the Covid-19 pandemic by 16.1% to €3.32 billion.

• " Profitability at krones was affected by expenses for capacity adjustments. Excluding these one-off effects, the eBITDA margin was 6.2% (previous year: 6.6%).

• " Due to the negative consolidated net income, krones will pay out only the statutory minimum dividend for 2020. This corresponds to €0.06 per share.

New machinery revenue fell more steeply in 2020 than total revenue. Aſter-sales business was likewise down as a result of the general economic un-certainty, but not by as much as the new machinery business. KRONES was able to mitigate the effects of the global travel restrictions thanks to its local service presence. We also support customers with digital services, including remote service.

Forecast 2020* March 2020	Updated forecast 2020 from November 2020	Actual 2020
Revenue growth	0%	ca. -17 %	-16.1%
eBITDA margin	around 6.7 - 7.2%	5.5 to 6.0 %**	6.2%**
Working capital/revenue***	26%	28 to 29%	28.3%

* From the report on expected developments in the 2019 management report. Due to the corona crisis, this guidance was withdrawn prior to publication of the management report on March 19, 2020.

** Excluding expenses for structural measures *** Average of last 4 quarters

krones' revenue down in 2020 due to Covid-19 pandemic

The economic impacts of the corona crisis also hit Krones in 2020. Revenue was down 16.1% year-on-year to €3,322.7 million.

The corona crisis had a severe impact on the global economy in 2020. This also affected KRONES. Due to the overall economic uncertainties, our customers were re-luctant to invest, especially in the first half of the year. Global travel restrictions also made it more difficult toinstall new machinery and lines and to provide services. In total, revenue de-creased in 2020 by 16.1% year-on-year, from €3,958.9 million to €3,322.7 million. The revenue shortfall is slightly smaller than the 17% decrease forecast in early November 2020.

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ManageMent RepoRt

Revenue by segment

The Covid-19 pandemic im-pacted business in both seg-ments in 2020. Process tech-nology was hit the hardest.

Revenue in the core segment, Machines and Lines for Product Filling and Decoration, fell due to co-rona by 14.3%, from €3,265.4 million in the previous year to €2,797.3 million in 2020. The segment's share of consolidated revenue increased to 84.2%.

The corona crisis had a more severe impact on the Machines and Lines for Bev-erage Production/Process Technology segment than on the core segment. Reve-nue decreased by 24.2% from €693.5 million in the previous year to €525.4 mil-lion in 2020. The segment contributed 15.8% of consolidated revenue (previous year: 17.5%).

Further information can be found under "Report from the segments" beginning on page 79 and under "Segment reporting" in the notes to the consolidated finan-cial statements on page 134.

Revenue by region

KRONES' revenue in Germany decreased in 2020 by 29.8% year-on-year to €328.7 million. This was mainly due to the weak domestic economy in Ger-many because of the Covid-19 pandemic. Domestic revenue was also relatively high in the previous year. The German share of consolidated revenue was 9.9% in 2020 (previous year: 11.8%).

Krones is strongly ex-port-oriented. Some 90% of revenue was generated internationally in 2020.

The Covid-19 pandemic also had a negative impact in 2020 on KRONES' revenue in the rest of Europe (excluding Germany). Western Europe was severely affected. Revenue there decreased 24.7% year-on-year to €467.0 mil-lion in the reporting period. The smaller Eastern Europe sales region saw revenue fall 37.3% to €153.8 million. In Central Europe (Austria, Switzerland and the Netherlands), revenue increased due to a strong fourth quarter in 2020 by 12.1% to €225.2 million. Revenue in Russia/CIS decreased by 16.4% to €63.9 mil-lion. Overall, KRONES' revenue in Europe (excluding Germany) fell in 2020 by 20.4% year-on-year from €1,142.9 million to €909.9 million, which is close to but slightly more than the decrease in total consolidated revenue. The share of consolidated revenue was 27.4% in 2020 (previous year: 28.9%).

2 | Consolidated	3 | deClaRation on	4 | Consolidated	5 | notes to the Consolidated
ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents	FinanCial stateMents

Asia-Pacific

* Share of total revenue

Share of consolidated revenue	2020	2019	Change
€ million %*	€ million %*	%
Germany	328.7 9.9	468.4 11.8	- 29.8
Central Europe (excluding Germany)	225.2 6.8	200.9 5.1	+ 12.1
Western Europe	467.0 14.1	620.1 15.7	- 24.7
Eastern Europe	153.8 4.6	245.4 6.2	- 37.3
Russia, Central Asia (CIs)	63.9 1.9	76.4 1.9	- 16.4
Middle East/Africa	477.4 14.4	451.5 11.4	+ 5.7
Asia-Pacific	433.0 13.0	521.1 13.2	- 16.9
China	215.9 6.5	319.9 8.1	- 32.5
North and Central America	644.3 19.4	683.4 17.3	- 5.7
South America/Mexico	313.5 9.4	371.8 9.4	- 15.7
Total	3,322.7 100.0	3,958.9 100.0	- 16.1

Business in the Middle East/Africa sales region, which is an important and large sales region for KRONES, developed well in 2020 despite corona. Revenue went up by 5.7% to €477.4 million. Our revenue in China was hit hard by the Covid-19 pandemic, especially in the first quarter of 2020 (when the decrease was 50%). Business stabilised in the following quarters. In total, revenue was down by a substantial 32.5% in 2020 to €215.9 million. In the rest of the Asia/ Pacific region, revenue decreased by 16.9% year-on-year to €433.0 million.

Share of consolidated revenue

Middle East/Africa €.€% ( € .€ million)Russia, Central Asia ( . % ( . million)

Europe ….€% ( , €. million)

South America/Mexico .€% ( .… million)

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Asia-Pacific . %( € . million)

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South America/Mexico .€% ( .Š million)

North and Central America . % ( Š .€ million)

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Revenue

Business in North and Central America was rela-tively stable in 2020. Revenue decreased slightly by 5.7% to €644.3 million. Parts of the South America/ Mexico region were more severely affected by co-rona. This resulted in a sharper fall in revenue. At €313.5 million, revenue there fell 15.7% short of the previous year.

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:

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Krones' revenue remains well balanced interna-tionally in established and emerging markets. The com-pany generated a total of 49.8% of consolidated reve-nue in emerging markets in 2020 (previous year: 50.2%). Mature industrialised econ-omies accounted for 50.2% (previous year: 49.8%) of the company's revenue.



Order intake and order backlog

2 | Consolidated	3 | deClaRation on	4 | Consolidated
ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents
Group backlog at

Order intake picked up significantly in the second half of 2020

Especially in the first half of 2020, Krones' order intake suf-fered from customers' reluc-tance to invest as a result of the corona crisis. In total, the con-tract value of orders decreased by 19.0% in the reporting period.

The international beverage industry was heavily impacted in 2020 by the corona pandemic. Revenue in bars and restaurants, for example, fell steeply due to lockdowns. The uncertain general economic environment affected customer invest-ment confidence. This is reflected in KRONES' or-der intake. Orders were sharply down, particularly in the first two quarters. As of 30 June 2020, the order intake at KRONES was down 28.5% on the previous year. Customer orders picked up again in the third quarter. This continued at an accelerated pace in the fourth quarter with an order intake of around €1 billion. In total, order intake decreased in 2020 by 19.0% on the previous year, from €4,083.5 million to €3,307.0 million. New machinery business was hit harder by the fall in orders than the aſter-sales business.

In North America, KRONES' order intake rose in 2020 despite the Corona crisis. Orders in all other regions were down in the reporting period. However, order intake in Africa/Middle East and Western Europe fell less sharply than the Group total. In Asia, China and South America, the contract value of orders of orders declined at a similar rate as for the company overall. We recorded steeper declines in Central and Eastern Europe.

krones closed 2020 with an order backlog of €1.21 billion

At €1,211.3 million as of 31 December 2020, KRONES' order backlog down 12.6% on the previous year (€1,385.7 million). This is because the order intake de-creased more sharply in the reporting period than revenue. However, the order backlog ensures relatively good capacity utilisation for the first few months of financial year 2021.

ManageMent RepoRt

krones Group earnings





krones achieves earnings target in difficult environment

Krones took further struc-tural measures to adjust ca-pacity in 2020. This incurred expenses of around €72 mil-lion. Krones achieved its margin target for 2020.

Due to the lower order intake, capacity utilisation at KRONES was less than optimal in 2020. This affected profitability. A positive impact came from the structural measures, which led to significant cost savings. Cost of materials was cut by a greater amount than revenue and output. Personnel ex-penses were not reduced at the same rate. This is largely because KRONES in-curred expenses of around €72 million in the reporting period for reductions in the workforce to adjust capacity.

In total, earnings before interest, taxes, depreciation and amortisation (EBITDA) went down from €227.3 million in the previous year to €133.2 million in 2020. The EBITDA margin was 4.0% (previous year: 5.7%). Excluding the expense of the personnel-related measures, this corresponds an EBITDA margin of 6.2% (previous year: 6.6%). The Executive Board's guidance was 5.5% to 6.0%.

Earnings before taxes (EBT) fell from €41.7 million in the previous year to -€36.6 million in 2020. KRONES recognized a total of about €18 million in good-will impairments following impairment testing in 2020. This impacted EBT. Conversely, the remeasurement of purchase price obligations from past acqui-sitions had a positive effect on EBT in the amount of about €10 million. These effects and the expenses for capacity adjustment thus came to around €80 million. Excluding these one-off expenses, the EBT margin is 1.3%.

ManageMent RepoRt



* As per proposal for the appropriation of earnings available for distribution

KRONES' consolidated net income came to -€79.7 million in 2020 (previous year: +€9.2 million). This corresponds to earnings per share of -€2.52 (previous year: +€0.30).

krones to pay statutory minimum dividend for 2020

Due to the negative net income, the Executive Board and Supervisory Board will propose to the Annual General Meeting on 17 May 2021 that only the statu-tory minimum dividend of 4% of the share capital, and thus a total of €1.9 mil-lion or €0.06 per share, be distributed for the 2020 financial year and that the remaining earnings available for distribution from the 2020 financial year be carried forward.



2 | Consolidated	3 | deClaRation on	4 | Consolidated	5 | notes to the Consolidated
ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents	FinanCial stateMents

krones Group earnings structure

Income tax Consolidated net income

Financial income/expense e

Depreciation and amortisation on fixed assets e

Other operating expenses e

Total operating performance Other own work capitalised Other operating income Goods and services purchased Personnel expenses

Changes in inventories of finished goods and work in progress

Revenue

€ million	2020	2019	Change
Revenue	3,322.7	3,958.9	- 16.1%
Changes in inventories of finished goods and work in progress	+39.1	+ 8.7	-
Total operating performance	3,361.8	3,967.6	- 15.3%
Other own work capitalised	+36.7	+ 63.0	- 41.7%
Other operating income	+120.5	+ 99.8	+ 20.7%
Goods and services purchased	- 1,694.7	- 2,041.8	- 17.0%
Personnel expenses	- 1,175.2	- 1,275.5	- 7.9%
Other operating expenses	- 516.0	- 585.9	-11.9%
eBITDA	133.2	227.3	- 41.4%
Depreciation and amortisation on fixed assets	- 174.0	- 183.3	- 5.1%
eBIT	- 40.8	43.9	-
Financial income/expense	+ 4.2	- 2.2	-
eBT	- 36.6	41.7	-
Income tax	- 43.1	- 32.5	+ 32.5%
Consolidated net income	- 79.7	9.2	-

Further information can be found under "Consolidated statement of profit and loss" on page 127.

KRONES recorded significant decreases in sales and total operating perfor-mance in the 2020 financial year due to the corona crisis. Total operating per-formance thus fell by 15.3% to €3,361.9 million. This was not quite as severe as the fall in revenue (which was down 16.1%) because inventories of finished goods and work in progress increased in the reporting period by €39.1 million, compared with €8.7 million in the previous year.

Personnel expenses were down by 7.9% year-on-year to €1,175.2 million in 2020.

Alongside cuts in the workforce both in Germany and internationally, reduced working hours and reduced overtime also contributed to the savings. The main reason why personnel expenses decreased by less than total operating perfor-mance related to restructuring expenses for the re-duction in the workforce. These amounted to around €72 million in the reporting year. The ratio of personnel expenses to total operating perfor-mance went up from 32.2% in the previous year to

Around €80 million in ex-penses for structural mea-sures and remeasurements reduced Krones' profitabil-ity in 2020.

35.0% in 2020. Excluding these expenses for restructuring, the personnel ex-pense ratio in financial year 2020 was 32.8%.

Goods and services purchased showed a positive trend. These fell more steeply than total operating performance in the reporting period, decreasing by 17.0% to €1,694.7 million. The ratio of goods and services purchased to total operating performance went down from 51.5% to 50.4%. This is due both to a decrease in purchased services from reducing the number of temporary employees and to a year-on-year increase in the proportion accounted for by the service business. Our structural measures to reduce material costs also had a positive effect.

Other operating expenses were down 11.9% in the reporting period to €516.0 mil-lion. While other operating income increased from €99.8 million to €120.5 mil-lion, other own work capitalised decreased in the financial year from €63.0 mil-lion to €36.7 million. The net balance of other operating income and expenses and own work capitalised decreased from -€423.1 million to -€358.8 million. This represented a 15.2% decrease, which is almost in line with total operating performance. As a percentage of total operating performance, the figure re-mained stable at 10.7%.

Overall, EBITDA (earnings before interest, taxes, depreciation and amortisation) went down by 41.4% in the reporting period, from €227.3 million to €133.2 mil-lion. The EBITDA margin consequently dropped from 5.7% to 4.0%. Adjusted for the approximately €72 million in restructuring measures for the reduction in the workforce in the reporting period, the EBITDA margin was 6.2% (previous year: 6.6%).

Depreciation and amortisation of fixed assets was slightly lower than in the pre-vious year, decreasing from €183.3 million in the previous year to €174.0 million. This includes around €18 million (previous year: around €40 million) in impair-

2 | Consolidated	3 | deClaRation on	4 | Consolidated	5 | notes to the Consolidated	6 | otheR inFoRMation
ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents	FinanCial stateMents
- .

Group

margin (%)











ment losses on intangible assets. Due to the lower depreciation and amortisa-tion, earnings before interest and taxes (EBIT) decreased less sharply than EBITDA, falling by €84.7 million to -€40.8 million. Net financial income/expense improved from -€2.2 million to €4.2 million. The main factor here is a decrease in interest and similar expenses from €14.6 million to €7.3 million and remea-surement gains in the amount of €10 million included in other income. KRONES did not record any investment income in 2020 (previous year: €5.6 million).

Earnings before taxes (EBT) fell from €41.7 million in the previous year to -€36.6 million. This results in an EBT margin of -1.1% (previous year: 1.1%). Adjusted for the restructuring expenses and remeasurements in the amount of around €80 million in the reporting period, the EBT margin was 1.3%. At €43.1 million, in-come taxes were higher in the reporting period than the previous year's €32.5 million. This figure was heavily affected in financial year 2020 by non-taxable expenses resulting from restructuring and remeasurements. Consolidated net income went down in 2020 relative to the previous year from €9.2 million to -€79.7 million.

-

.

2 | Consolidated	3 | deClaRation on	4 | Consolidated	5 | notes to the Consolidated
ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents	FinanCial stateMents

Consolidated cash flow

€ million

m

€ million	2020	2019
Earnings before taxes	- 36.6	41.7
Other non-cash changes	+ 186.7	+ 309.4
Changes in working capital	+ 166.0	- 202.3
Changes in other assets and liabilities	+ 5.7	- 55.3
Cash flow from operating activities	321.8	93.5
Capital expenditure for intangible assets and property, plant and equipment	- 93.8	- 168.9
m&A activities	± 0.0	- 28.0
Other	+ 6.7	+ 9.0
Free cash flow	221.3	- 94.4
Cash flow from financing activities	- 99.0	- 19.3
Other	- 15.7	+ 5.3
Net change in cash and cash equivalents	106.6	- 108.4
Cash and cash equivalents at the end of the period	217.0	110.4

€

'

Free cash flow significantly increased in 2020 to €221.3 million

Krones improved cash flow from operating activities in 2020 by €228.3 million to €321.8 million. This was mainly due to significantly lower working capital.

KRONES' cash flow developed very positively in 2020 despite the difficult conditions. The company thus improved cash flow from operating activities, despite the shortfall in earnings, by €228.3 million to €321.8 million. This strong growth was mainly due to a significant reduction in working capitalcompared with the previous year. Working capital decreased by €166.0 million in the reporting period; this contrasts with the previous year, when it increased by €202.3 million and had the effect of reducing cash flow. Lower inventories,trade receivables and contract assets contributed to the reduction in working capital.

In addition, the lower working capital reflects a significantly smaller reduction in KRONES' trade payables and contract liabilities in 2020 than in the previous year. Non-cash changes - alongside the change in provisions, mainly deprecia-tion and amortisation - had an additional €186.7 million positive impact on cash flow (previous year: €309.4 million). Changes in other assets and liabilities likewise show a positive figure of €5.7 million on the cash flow statement (previ-ous year: -€55.3 million).

For further information, please see the full statement of cash flows on page 131.

2 | Consolidated	3 | deClaRation on	4 | Consolidated	5 | notes to the Consolidated
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­€

 



ƒ

­



Average working capital over the past four quarters as a percentage of revenue increased due to the signifi-cantly lower revenue from 26.9% to 28.3%.

Ratio of working capital to revenue increased to 28.3%

Despite improvements in working capital, average working capital over the past four quarters in-creased as a percentage of revenue due to the signifi-cantly lower revenue from 26.9% in the previous year to 28.3% in the reporting period. KRONES thus achieved its target for the year of 28% to 29%. The working capital to revenue ratio was 25.7% as of the reporting date (previous year: 25.8%).

KRONES invested €93.8 million in property, plant and equipment and intangi-ble assets in the reporting period. As planned, capital expenditure was thus well below the €168.9 million recorded in the previous year, which was higher because of establishing the location in Hungary. The ratio of capital expendi-ture to depreciation and amortisation decreased to 0.54 in the reporting year due to exceptionally low capital expenditure (previous year: 0.92).

2 | Consolidated	3 | deClaRation on	4 | Consolidated	5 | notes to the Consolidated	6 | otheR inFoRMation
ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents	FinanCial stateMents
.

Group dividend payout ( million)

Krones generated free cash flow of €221.3 million in 2020 (previous year: €-94.4 million).

Due to lower capital expenditure, the company's free cash flow - the net inflow of cash and cash equivalents - improved even more significantly than operating cash flow. KRONES improvedfree cash flow by €315.7 million in 2020 to €221.3 million (previous year: -€94.4 million).

The cash outflow from financing activities was €99.0 million (previous year: €19.3 million). For the reporting period, this item mainly includes the cash out-flow from the dividend payout of €23.7 million (previous year: €53.7 million),

the cash outflow from the reduction of bank loans amounting to €40.2 million and the cash outflow from the repayment of lease liabilities amounting to €35.2 million (previous year: €32.1 million). Changes in exchange rates and the consolidated group decreased liquidity by €15.6 million (previous year: in-crease of €5.3 million). In total, KRONES increased cash and cash equivalents in the reporting period by €106.6 million to €217.0 million. Net cash and cash equivalents (cash and cash equivalents less bank debt) went up from €38.1 mil-lion in the previous year to €184.9 million.

ƒ

­'

2 | Consolidated	3 | deClaRation on	4 | Consolidated	5 | notes to the Consolidated
ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents	FinanCial stateMents

Assets and capital structure

Total debt

€ million at 31 December

€ million at 31 December	2020	2019	2018
Non-current assets	1,093	1,154	1,010
of which fixed assets	990	1,070	936
Current assets	1,957	2,165	2,312
of which cash and equivalents	217	110	219
Equity	1,200	1,370	1,433
Total debt	1,850	1,949	1,888
Non-current liabilities	476	452	359
Current liabilities	1,374	1,497	1,529
Total	3,050	3,319	3,321

For further information, please see the full balance sheet on page 129 and 130.

Due to the significantly lower volume of business, total assets were down 8.0% to €3.05 billion as of 31 December 2020 (31 December 2019: €3.32 billion), although this was a smaller decrease than in KRONES' total operating perfor-mance (which was down 15.3%).

The company's non-current assets totalled €1,092.5 million at the end of 2020, down 5.3% on the previous year (€1,154.0 million). This was primarily due to a €79.9 million decrease in fixed assets to €989.9 million (previous year: €1,069.8 million). That decrease mainly relates to a reduction property, plant and equipment and right-of-use assets, which fell to €656.1 million (31 Decem-ber 2019: €693.2 million) because of the lower capital expenditure. The Compa-ny's intangible assets were down as of 31 December, falling partly as a result of €17.9 million in goodwill impairments to €300.6 million (31 December 2019: €345.2 million).

KRONES' current assets decreased by a greater pro-portion than total assets. Current assets amounted to €1,957.0 million at the end of the reporting period, a decrease of 9.6% on the previous year's figure of €2,165.4 million. The main reason for the decline

At 8.1%, the reduction in total assets at Krones was smaller than the decrease in total operating performance (15.3%).

was a significant reduction in trade receivables. KRONES reduced trade payables in the reporting period by €228.7 million to €704.1 million. Contract assets were also down, falling from €571.3 million to €518.8 million. Inventories were likewise reduced, to €355.1 million (31 December 2019: €382.5 million). Cash and cash equivalents increased, mainly due to the positive free cash flow gener-ated in reporting period, rising by €106.6 million to €217.0 million at the end of 2020.

On the equity and liabilities side, KRONES' non-current liabilities increased in the reporting period to €475.5 million (31 December 2019: €452.0 million). This was mainly due to higher provisions for pensions. These increased, mostly due to a reduction in the discount factor and mostly not recognized through profit or loss, to €281.4 million (previous year: €260.2 million). KRONES had non-current bank debt totalling €5.1 million at the end of 2020 (previous year: €0.1 million).

Current liabilities decreased significantly. These fell relative to the 2019 year-end by 8.2% to €1,374.0 million as of 31 December 2020. This mainly related to trade payables, which KRONES reduced in the reporting period by €93.4 million to €370.3 million. In addition, contract liabilities, which mostly consist of trade obligations, went down by €37.8 million to €405.1 million. The company also reduced short-term bank debt. This stood at €27.0 million as of the reporting date (31 December 2019: €72.2 million).

ManageMent RepoRt

Other liabilities and provisions likewise decreased, also due to the decrease in the provision for outstanding invoices. They amounted to €300.0 million at the end of 2020 (previous year: €325.8 million).

Krones continues to have strong finances and capital with an equity ratio of 39.4%, net cash and cash equivalents of €184.9 million and a total of €1 billion in free lines of credit.

KRONES had significantly improved net cash and cash equivalents (cash and cash equivalents less bank debt) of €184.9 million at the 2020 reporting date (previous year: €38.1 million). In addition, the group has €500.1 million in unused lines of credit. A backup facility of €500 million is also available.

Even in the corona crisis, KRONES thus further advanced its primary financial management objective, which is to secure the company's strong financial resources and independence.

Decrease in equity ratio and roCe

The lower consolidated net income of -€79.7 million (previous year: +€9.2 million), a €66.7 million de-crease in other reserves and the €23.7 million divi-dend payout meant that equity decreased by 12.4% in 2020, from €1,370.0 million to €1,200.0 million. The equity ratio consequently went down from 41.3% to

As a result of the negative consolidated net income, equity decreased by 12.4% in 2020. Krones' equity ratio consequently went down in the reporting period from 41.3% to 39.4%.

39.4%. Overall, however, KRONES continues to pos-sess an exceptionally robust financial and capital structure.

Return on capital employed (ROCE) - the ratio of EBIT to average net capital employed - went down from 2.7% in the previous year to -2.6% in the reporting period. This was due to the negative EBIT, which fell significantly as a result of expenses for the workforce reduction and impairments on intangible assets.

2 | Consolidated	3 | deClaRation on	4 | Consolidated	5 | notes to the Consolidated
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Report from the segments

Machines and Lines for Product Filling and Decoration

margin

Segment

( million) and

margin (%)

Segment revenue

Revenue in Krones' core segment fell by 14.3% to €2,797.3 million in 2020 as a result of corona.

Revenue in the core segment, Machines and Lines for Product Filling and Decoration, fell by 14.3%, from €3,265.4 million in the previous year to €2,797.3 mil-lion in 2020. The fall in revenue reflects the economicimpact of the Covid-19 pandemic. Due to low investment confidence among customers, revenue in the new machinery business fell more steeply than total revenue. In the aſter-sales business, KRONES benefited from its strong regional presence, which limited the negative impact of travel restrictions. Nevertheless, service revenue was also lower in 2020 than in the previous year. The core seg-ment contributed 84.2% of consolidated revenue in the reporting period (2019: 82.5%).

Segment earnings

Despite lower revenue, KRONES was able to keep the core segment's operating profitability stable in 2020. The structural cost-cutting measures adopted by the company in the second half of 2019 had a positive effect on earnings in the reporting period. Earnings before interest, taxes, depreciation and

Excluding the expenses for the personnel-related mea-sures, the eBITDA margin in the core segment was stable in 2020 relative to the previ-ous year.

amortisation (EBITDA) were down from €218.5 million in the previous year to €171.5 million. This corresponds to an EBITDA margin of 6.1% (previous year: 6.7%). However, it should be noted that the core segment accounted for a large proportion - just under €66 million - of the expenses for personnel-related measures totalling around €72 million, and this impacted the segment's EBITDA and EBITDA margin.

2 | Consolidated	3 | deClaRation on	4 | Consolidated	5 | notes to the Consolidated
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Machines and Lines for Product Filling and Decoration

2 | Consolidated	3 | deClaRation on	4 | Consolidated	5 | notes to the Consolidated
ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents	FinanCial stateMents

Machines and Lines for Beverage Production/Process Technology

margin

Segment revenue

The corona crisis had a particularly heavy impact on the Machines and Lines for Beverage Production/ Process Technology seg-ment in 2020. Revenue fell by 24.2%.

Business in the Machines and Lines for Beverage Production/Process Technology segment was hit even harder by the corona crisis in 2020 than the core segment. This is due to the difficult situation faced by international breweries, which suffered from the lockdowns due to corona. Segment reve-nue decreased by 24.2% year-on-year from €693.5 million to €525.4 million. The intralogistics business, which is part of the segment, saw a smaller de-crease in revenue. As a proportion of consolidated revenue in 2020, the seg-ment overall contributed 15.8% (previous year: 17.5%).

Segment earnings

Aſter a very weak first half of 2020, operating earnings in the Machines and Lines for Beverage Production/Process Technology segment improved slightly in the second half of the financial year. In total, earnings before interest, taxes, depreciation and amortisation (EBITDA) went down from €8.8

eBITDA in the Machines and Lines for Beverage Production/ Process Technology segment was -€38.3 million in 2020 (previous year: €8.8 million). This includes around €6 million in expenses for restructuring.

million in the previous year to -€38.3 million. This primarily reflects the poor situation faced by breweries. In addition, expenses for personnel-related measures impacted the segment's EBITDA by around €6 million in the fourth quarter. In intralogistics, our subsidiary SYSTEm LOGIS-TICS was hit hard by the lockdown in Italy, particularly in the first half of the year. Profits were generated again in the second half of the year but these were not able to fully compensate for the losses incurred in the first half. Segment earnings also reflected initial losses from digitalisation activities.

2 | Consolidated	3 | deClaRation on	4 | Consolidated	5 | notes to the Consolidated
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Machines and Lines for Beverage Production/Process Technology

2 | Consolidated	3 | deClaRation on	4 | Consolidated	5 | notes to the Consolidated
ManageMent RepoRt	CoRpoRate goveRnanCe	FinanCial stateMents	FinanCial stateMents

Report on economic position Overall assessment of economic position

GOevseamratlaluasssasgeszsumr weinrttscohaffetliccohennoLmagiec position

The reporting year at KRONES was marked above all by the challenges brought by the coronavirus. The Covid-19 pandemic had a major impact on our custom-ers' investment confidence and hence also on KRONES' financial position, finan-cial performance and cash flows.

Working capital as a percentage of revenue - KRONES' third performance target - improved from 26.9% in the previous year to 28.3%. KRONES thus achieved its target for the year of 28% to 29%.

Despite the difficult economic environment, KRONES succeeded in meeting or slightly exceeding its revised guidance for business performance in the report-ing year. The main factor here was the systematic implementation of structural measures to adjust capacity, including the personnel-related measures.

In the corona-dominated 2020 financial year, KRONES saw revenue fall by 16.1% to €3,322.7 million. This is a slightly smaller revenue shortfall than the 17% de-crease forecast in early November 2020. Order intake fell 19.0% to €3,307.0 mil-lion However, it showed significant signs of recovering in the third and particu-larly in the fourth quarter.

Due to the strong improvement in free cash flow - which went up substantially in 2020 to €221.3 million (previous year: -€94.4 million) - KRONES had substan-tially higher net cash and cash equivalents (cash and cash equivalents less bank debt) of €184.9 million (previous year: €38.1 million). In addition, the group has around €500 million in unused lines of credit together with an additional €500 million back-up facility. Even in the corona crisis, KRONES thus further ad-vanced its primary financial management objective, which is to secure the company's strong financial resources and independence.

Due to the lower overall order intake, capacity utilisation at KRONES was less than optimal in 2020. This affected profitability. A positive impact came from the structural measures, which led to significant cost savings. In total, earnings before interest, taxes, depreciation and amortisation (EBITDA) went down from €227.3 million in the previous year to €133.2 million in 2020. The EBITDA margin was 4.0% (previous year: 5.7%). Excluding the €72 million expense of the work-force reduction for capacity adjustment, this corresponds to an EBITDA margin of 6.2% (previous year: 6.6%). The Executive Board's guidance was 5.5% to 6.0%.

The Executive Board is cautiously optimistic for financial year 2021, with guidance of 2.5% to 3.5% revenue growth. Based on the slight recovery in reve-nue and the savings from the structural measures, the Executive Board expects profitability to be better than in 2020. KRONES anticipates an EBITDA margin of 6.5% to 7.5% in 2021. The third target, the working capital to revenue ratio, is expected to improve to between 26% and 27%. The guidance for 2021 is subject to the assumption, however, that there will be no severe impacts from the Covid-19 pandemic. This would hit the economy and hence also KRONES harder than currently expected and could lead to negative revenue and earnings effects.

ManageMent RepoRt Employees

Employees

Employees by region

TotalGermanyOutside Germany

Number of employees down 3.6% worldwide to 16,736

Due to structural adjustments in line with the short Krones reduced the workforceto medium-term fall in demand, KRONES reduced its workforce in 2020 by 617 to 16,736 employees. The reduction in the workforce, which for the most part was already initiated in 2019, reduced the number of employees at German locations by 369 to 10,364 in the reporting period.

by 617 positions worldwide in 2020. Locations in Germany were the main focus of the structural adjustments. The share of employees outside Germany remained at 38.1%, as in the previous year.

As the Covid-19 pandemic also temporarily slowed the expansion of KRONES' global footprint, the number of employees abroad was also down, falling by 248 to 6,372. The share of employees outside Germany was consequently 38.1%, as in the previous year.

Emerging markets workforce also slightly reduced

The number of employees in emerging market regions also decreased slightly in the reporting period, by 3.2% to 4,055. Aſter the sharp increase (by 33.3%) in the previous year, the number of employees in emerging markets thus consoli-dated at a high level as a result of the crisis. As a percentage of the total work-force, however, foreign employees in emerging markets - where KRONES has generated around 50% of consolidated revenue for many years - went up slightly from 24.1% in the previous year to 24.2%.

krones reduces workforce with voluntary programme

In September and November 2020, KRONES made individual and voluntary of-fers to a portion of the workforce in Germany to terminate their employment contracts. Around 400 employees accepted the offers. However, this was not

ManageMent RepoRt Employees Sustainability at Krones

enough to adjust capacity to future market conditions. The Executive Board therefore decided at the end of 2020 on a further reduction by 350 positions at locations of KRONES AG in Germany. This reduction in the workforce will be implemented in as socially responsible a manner as possible.

Employees in the emerging markets 2016 - 2020

Year	South America	Africa	Asia-Pacific	CIs/Eastern Europe	China	Total
2016	549	386	602	155	508	2,200
2017	581	393	734	398	608	2,714
2018	637	452	830	507	716	3,142
2019	782	671	1,009	933	792	4,187
2020	778	639	974	922	742	4,055

After the sharp increase in the previous year (by 33.3%), Krones reduced its emerging markets workforce slightly in 2020 by 3.2% to 4,055.

The company plans to continue its above-average growth in emerging markets. Accordingly, we have substantially expanded the workforce there in the past few years. The more people KRONES recruits from local regions for our international locations,the closer we are to our customers and markets. In the medium term, given cor-responding market growth, we will further increase the proportion of the workforce in emerging markets.

KRONES needs a qualified and motivated workforce. They are the basis for KRONES' long-term success. It is they who enable the company to leverage market opportunities and build on KRONES' strengths. This is why, despite the corona crisis, we continue to invest heavily in training and employee develop-ment for our global workforce.

More information on our labour practices can be found in our Non-financial report. This is available online athttps://www.krones.com/en/company/respon-sibility/downloads.php.

Sustainability at KRONES

In the context of its sustainability management activities, the KRONES Group contributes to sustainable development. In order to identify potential risks at an early stage, reduce our environmental footprint and continuously enhance our positive impact on the community, sustainability is incorporated in all ma-jor decisions. We are aware of our responsibility in the KRONES Group, not only for our business performance, but also for the effects of our business activities on the environment, employees, society and future generations.

Non-financial report for 2020

Under the CSR Directive Implementation Act, which entered into force in Ger-many in 2017, we disclose the policies we followed in the last financial year with respect to the non-financial aspects that are material to KRONES.

The non-financial report for 2020, which is not part of the group management report, is simultaneously the combined separate consolidated non-financial report for the KRONES Group and KRONES AG for the 2020 financial year, within the meaning of Sections 315b and 315c read in conjunction with Sections 289c to 289e of the German Commercial Code (HGB).

The Non-financial report is published online at https://www.krones.com/en/company/responsibility/downloads.php.

ManageMent RepoRt

Risk and opportunity report

Risk and opportunity report

" Risks identified on an ongoing basis

"

Efficient control and management tools limit risks

krones' risk management system

Krones actively addresses potential risks. All key business processes are con-stantly subject to an internal control and management system.

KRONES is exposed to a variety of risks that are inextricably linked with doing business globally. We continuously monitor all significant business processes to identify risks early and to actively manage and limit them. Within our corporate strat-egy, we also identify, analyse and unlock opportunities. Unlike risks, business opportunities are not documented within our risk management system.

In essence, risks are defined as potential negative deviations from our earnings forecast for the 2021 financial year. Opportunities are potential positive devia-tions from our earnings forecast for the 2021 financial year. Because they share the same sales and procurement markets, the same risks and opportunities essentially also apply to both of the KRONES Group's operating segments.

KRONES' risk management system consists of an internal control system with which we record, analyse, and assess all relevant risks. We monitor all material risks and any countermeasures already taken in a detailed, ongoing process that entails planning, information and control.

We assess risks on the basis of the likelihood of an event and its potential finan-cial impact. Earnings before interest and taxes (EBIT) serve as the measure for potential financial impact. Starting with gross risk, we determine the net risk, which takes into account any mitigating actions taken.

KRONES presents risks using a three-column approach, which covers the maximum loss associated with a risk, the likelihood of an event and the finan-cial impact - the latter being the product of the first two factors. Each factor is categorised as either low, medium, or high.

The categories are defined as follows:

Maximum loss* (€ million)

medium high

low	1.0 to 10.0	low	0 to 20	low	1.0 to 10.0
medium	10.1 to 50.0	medium	21 to 49	medium	10.1 to 50.0
high	> 50.0	high	50 to 100	high	> 50.0

Likelihood of an event (%)

Potential financial impact* (€ million)

*Based on eBIT

ManageMent RepoRt

Risk and opportunity report

Multi-stage risk management system

We are continually improving our risk management system on the basis of practical experience. The system consists of the following modules: risk analy-sis, risk monitoring, and risk planning and control.

Risk analysis

In order to identify risks early, we continuously monitor all business activities. Material project-related risks are reduced or avoided before an order is accepted. We conduct a profitability analysis of all quotes prior to order acceptance. For orders that exceed a specified volume, we also conduct a multidimensional risk analysis. Apart from profitability, we also individually record and evaluate fi-nancing risks, technological risks and tax risks as well as scheduling and other contractual risks before accepting an order.

To manage risks that arise from changes in the market and competitive situa-tion, 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 annually for KRONES AG and all significant group companies. The results of the risk inventory and mitigating actions are used in our annual planning and forecasting. The basic principles and process are documented in our risk policy. The risk management system serves not only the purpose mandated by law - early detection of going concern risks - but also covers all risks that may have a significant negative im-pact on earnings.

Risk monitoring

We use a variety of interlinked controlling processes to monitor risks within the KRONES Group. Regular comprehensive reports from the individual busi-ness units keep the Executive Board and other decision-makers apprised in a timely manner of all possible risks and deviations from company planning and of the status of mitigating actions. For projects with a high contract value, po-tential risks are examined and evaluated in regular meetings. Employees who identify risks pass their information on without delay through the company's internal reporting system.

Risikoplanung und -steuerung

We primarily use the following tools to plan our business activities and control risk within our internal control system:

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

ManageMent RepoRt

Risk and opportunity report

Risk management organisation

Krones' risk management system is continuously mon-itored and reviewed. This is governed by clear areas of responsibility and account-ability.

Risk management at KRONES is part of Controlling. The risk management system is reviewed by Inter-nal Audit.

All relevant information is collated in Controlling, where it is processed and made available in a man-agement tool for the Executive Board. In addition, the various segments and business units also have risk management officers who are responsible for risk management. This includes identifying and reporting risks as well as introduc-ing and implementing measures to actively control them.

Risk management organisation at

Auditor

Audit system for early detection of risks

Auditor's report

Information about material risks

Report on risk inventory

Consolidated financial statements

Consolidated management report

Supervisory Board - Audit and Risk Management Committee

Monitor efficacy of the internal control system and the risk management and compliance systems

Risk management

Risk management officers for the business units Detect and report risks and introduce countermeasures

The Executive Board (Vorstand)

Overall responsibility for the risk management system

Central risk management

Central point of contact

Support risk management process Manage risk reporting system Risk controlling

ManageMent RepoRt

Risk and opportunity report

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

The aim of the internal con-trol and risk management system is to ensure that all business transactions are correctly recorded, processed, recognised and included in financial reporting.

KRONES has an internal control and risk manage-ment system for accounting and financial report-ing processes to ensure that all business transac-tions are always correctly recorded, processed, recognised and included in financial reporting. KRONES' internal control and risk management sys-tem comprises all principles, methods and measures to ensure that the compa-ny's accounting and financial reporting are effective, efficient and proper and in compliance with all relevant regulations and standards.

The KRONES Group has a clear management and corporate structure. Cross-cutting key functions are centrally managed.

• " The duties of the units that are materially involved in accounting and financial reporting processes are explicitly segregated and responsibilities clearly assigned.

• " Regular reviews and audits are conducted within the various units, primarily by Controlling.

• " Commercial off-the-shelf soſtware is used for accounting and financial reporting as far as possible.

• " Special security precautions protect the soſtware and IT systems used for accounting and financial reporting against unauthorised access.

• " Sufficient 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 financial reporting process work constantly to assure the quality of their work.

• " Regular spot checks are used to continuously verify the completeness and accuracy of our accounting data.

• " The soſtware used in accounting performs programmed plausibility checks.

• " We use dual verification for all accounting-related processes.

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Overview and description of material risks

Risk categories	Maximum loss	Likelihood of event	Potential financial impact
General business environment and industry-specific risks
General economic risks	high	medium	medium
Industry-specific risks	high	low	medium
Financial risks
Default risks	high	low	high
Liquidity risk	low	low	low
Interest rate risk	low	low	low
Currency risk	medium	medium	low
Operational risks
Price risk	high	medium	high
Procurement risks	medium	medium	medium
Cost risk	high	medium	high
Personnel risk	low	low	low
Legal risks	high	medium	medium
Environmental and safety risks	high	low	low
IT risks	medium	low	low

KRONES classifies the maximum loss, the likelihood of an event and the potential financial impact of material risks into the three risk categories low, medium and high. Definitions are provided below on page 86.

General business environment and industry-specific risks

General economic risks

As a provider of products and services for the food and beverage industries, KRONES is less dependent on economic cycles than other machinery manufac-turers. However, the company cannot escape the influence of the general eco-nomic situation entirely, as the corona crisis in 2020 has shown.

It continues to be difficult to predict the full impacts of the coronavirus on the global economy. Should the Covid-19 pandemic prove harder to contain than expected this year, for example because of dangerous mutations or vaccination difficulties, this would adversely affect economic growth and investment confi-dence among customers. That could also have a negative impact on KRONES' revenue and earnings.

Our potential direct impact from international trade conflicts is minor. If, how-ever, global economic growth were to be considerably weaker than expected, for example due to sustained trade conflicts, this would have a negative impact on KRONES' revenue and earnings.

A global financial crisis could likewise have a negative impact on investment in machines and lines from KRONES because financing options would worsen in general. The company's broad international base puts KRONES in a position to at least attenuate any decline in business in individual regions.

Impact of industry-specific risks: We rate the maximum loss as high, the likelihood of an event as low and the financial impact as medium.

Industry-specific risks

KRONES is exposed to industry-specific risks primarily through the develop-ment of the global packaging market and the actions of competitors. The com-petitive environment could intensify if KRONES' competitors resort to price dumping in an effort to win orders and thus more fully utilise their production

ManageMent RepoRt

Risk and opportunity report

capacities. We are addressing the risk of loss of market share by further ex-panding our technology leadership. KRONES' strong focus on service also sets the company apart from the competition.

Plastic and PET packaging has increasingly become a subject of debate in recent years, primarily in Europe. KRONES generates a large proportion of revenue with such products. It cannot be ruled out that the PET debate will intensify and spread regionally in the long term. This could reduce our customers' willing-ness to invest in plastics technology and hence have a negative impact on revenue and earnings.

Impact of industry-specific risks: We rate the maximum loss as high, the likelihood of an event as low and the financial impact as medium.

Financial risks

The financial risks to which KRONES is exposed are default risks, liquidity risks, interest rate risks, and currency risks. Our description of these risks and suit-able actions below is in keeping with the disclosure requirements under IFRS 7 on the reporting of risks relating to financial instruments. Because of regional and customer-related diversification, there is no material concentration of risk.

1. Default risk

Default risk is the maximum potential risk arising from each individual exposure at the reporting date. Any counter-exposures are not taken into account.

1.1 Trade receivables

Credit risk in trade receivables is the risk of economic loss arising from a customer's failure to fulfil contractual payment obligations.

KRONES manages credit risk on trade receivables on the basis of internal policies. Most trade receivables are backed by various, sometimes coun-try-specific, forms of security. These include retentions of title, guarantees 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 con-tinually monitoring receivables that may be at risk of default. Write-downs on bad debt (non-recoverable trade receivables) are taken on an individual basis. The very low volume of actual defaults, as measured against the total volume of receivables, attests to the effectiveness of the measures taken.

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

31 Dec 2020 Trade receivables

31 Dec 2019 Trade receivables

€ thousand	Carrying amount	of which not overdue at the reporting date	of which overdue by the following number of days at the reporting date
up to 90 days	between 90 and 180 days	between 180 and 360 days	more than 360 days
31 Dec 2020 Trade receivables and contract assets	1,259,108	1,130,227	82,798	26,194	17,698	2,191
31 Dec 2019 Trade receivables and contract assets	1,533,050	1,368,344	115,204	21,677	19,501	8,324

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• 1.2 Derivative financial instruments

  KRONES uses derivative financial instruments on the basis of individual contracts solely for risk management purposes. Not using derivative finan-cial instruments would expose the company to greater financial risks.

  These instruments essentially cover the risks arising from changes in ex-change rates between the euro and the uS dollar, the Canadian dollar, the Norwegian krone and the Japanese yen. The material contractual details (amount and term) of the underlying and hedge transactions are largely identical. Default risk relating to derivative financial instruments in the event of counterparty default is limited to the balance of the positive fair values. More on this topic is in the notes to the consolidated financial statements.

• 1.3 Other financial assets

  The maximum credit risk position arising from other financial assets corresponds to the carrying amount of the instruments. KRONES is not exposed to any material default risk arising from its other assets, all of which are current assets.

  Impact of default risks: We rate the maximum loss as high, the likelihood of an event as low and the financial impact as high.

2. Liquidity risk

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

KRONES generates most of its cash and cash equivalents through operating activities. These funds primarily serve to finance working capital and capi-tal expenditures. KRONES manages its liquidity by reserving sufficient cash and cash equivalents and credit lines with banks in addition to the regular inflow of payments from operating activities. The company's liquidity man-agement for operations consists of a cash management system that is basedin part on rolling monthly liquidity planning with a planning horizon of one year. This enables KRONES to be proactive about any possible liquidity bottle-necks. 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 flows relating to liabilities as of 31 December 2020 influence the company's liquidity situation.

€ thousand	Carrying amount at 31 Dec 2020	Cash flow for 2021 Repay- Interestment	Cash flow for 2022 - 2025 Repay- Interestment	Cash flow for 2025 or later Repay- Interestment
Derivative financial instruments	784	0	735	0	49	0	0
Liabilities to banks	32,064	43	27,005	158	3,809	7	1,250
Liabilities from trade receivables	370,359	0	370,315	0	44	0	0
Liabilities from leases	95,217	713	28,058	2,494	50,851	1,315	16,308
Other financial liabilities	107,556	0	95,369	0	12,187	0	0
605,980	756	521,482	2,652	66,940	1,322	17,558

€ thousand	Carrying amount at 31 Dec 2019	Cash flow for 2020 Repay- Interestment	Cash flow for 2021 - 2024 Repay- Interestment	Cash flow for 2024 or later Repay- Interestment
Derivative financial instruments	3,392	0	2,828	0	564	0	0
Liabilities to banks	72,242	0	72,178	3	64	0	0
Liabilities from trade receivables	463,736	0	463,722	0	14	0	0
Liabilities from leases	89,048	2,082	29,802	5,125	56,034	611	3,212
Other financial liabilities	146,013	0	100,347	0	47,216	0	0
774,431	2,082	668,877	5,128	103,892	611	3,212

Impact of liquidity risk: We rate the maximum loss as low, the likelihood of an event as low and the financial impact as low.

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• 3. Interest rate risk

  KRONES is exposed to risk arising from possible fluctuations in market interest rates. As of the 2020 reporting date, KRONES made comparatively minor use of bank borrowings relative to its business volume.

  Impact of interest rate risk: We rate the maximum loss as low, the likelihood of an event as low and the financial impact as low.

• 4. Currency risk

  Because exports to countries outside the eurozone make up a significant portion of total revenue, we are exposed in principle to currency risk. We use exchange rate hedges to counter such risk as far as possible. In addition, we make most purchasing and sales transactions in euros or the relevant functional currency.

Material items denominated in foreign currencies in accordance with IFrs 7 classes:

Trade receivables

31 Dec 2020

31 Dec 2020 € thousand	Currency UsD	Currency noK	Currency CAD	Currency CnY	Currency gBP
Cash and cash equivalents	3,213	0	350	0	0
Trade receivables	957	0	0	12
Other financial receivables	0	0	0	0	0
Derivatives at positive market values	7,372	20	17	141	27
Total assets	10,585	977	367	141	39
Liabilities
Trade payables	6,542	9	1,229	0	637
Due to banks	0	0	0	0	0
Other liabilities	0	0	0	0	0
Derivatives at negative market values	367	4	211	115	13
Total liabilities	6,909	13	1,440	115	650
Balance of assets and liabilities	3,676	964	- 1,073	26	- 611
Net exposure at 31 Dec 2020	3,676	964	- 1,073	26	- 611

A change in reporting date closing rate by +10% in relation to the foreign currency against the euro (indirect quotation) would have the following effect on consoli-dated net income and other equity components:

€ thousand	Currency UsD	Currency noK	Currency CAD	Currency CnY	Currency gBP
Consolidated statement of profit and loss	- 4,321	162	621	1,847	- 138
Consolidated equity	12,762	0	251	0	- 111

Impact of currency risk: We rate the maximum loss as medium, the likelihood of an event as medium and the financial impact as low.

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Operational risks

• 1. Price risk

  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.

  KRONES must bear any additional costs that arise. To minimise this risk, KRONES has introduced a multidimensional order analysis process. Any en-quiry or order equal to or greater than a specific amount is assessed on the basis of financial, technical/technological, tax, legal and regional risks.

  Impact of price risk: We rate the maximum loss as high, the likelihood of an event as medium and the financial impact as high.

• 2. Procurement risks

  KRONES is exposed to market price risk relating to its procurement of parts and raw materials for operations. Geopolitical and macroeconomic devel-opments are the primary factors influencing raw materials prices. Essen-tially, the risk is that raw material prices will develop to our disadvantage. The company mitigates this risk through targeted procurement manage-ment and long-term supply contracts to reduce material commodity price risks. With respect to suppliers, we also face risks relating to products, dead-lines and quality. A specially designed process for supplier selection, moni-toring and management helps minimise these risks.

  Impact of procurement risks: We rate the maximum loss as medium, the likelihood of an event as medium and the financial impact as medium.

• 3. Cost risk

  Our earnings forecast is based on us reducing costs as a result of structural measures. Examples include workforce adjustments at our German loca-tions, our new plant in Hungary and increasing material procurement in best-cost countries. We seek to optimise cost structures along the entire value chain. KRONES is exposed to the risk that these cost savings will be less than expected. We mitigate this risk by continually monitoring the projects underway across the company.

  Impact of cost risk: We rate the maximum loss as medium, the likelihood of an event as low and the financial impact as high.

• 4. Personnel risk

  KRONES intends to step up growth, in particular on the services and digital side. For that purpose we need highly qualified employees in Germany and abroad. There is a risk that the company will not find enough suitable employees. We will ensure early access to qualified employees through ongoing cooperation with colleges and universities. We regularly employ students pursuing their bachelor's and master's degrees. We also use professional HR consultants.

  Impact of personnel risk: We rate the maximum loss as low, the likelihood of an event as low, and the financial impact as low.

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Legal risks

KRONES is exposed to risks arising from operating activities in connection with possible legal disputes. KRONES addresses legal risks with its rules of conduct, codes and an internal compliance structure. In addition, the company has taken out insurance policies that are customary for our sector.

Impact of legal risks: We rate the maximum loss as high, the likelihood of an event as medium, and the financial impact as medium.

Environmental and safety risks

As a manufacturing company, KRONES is exposed to risks relating to the envi-ronment and safety that could lead to possible harm to individuals, goods or the company's reputation. Any harm caused by technical or human error in production can have a direct impact on our financial position. Such an event and any resulting fines, claims for damages or harm to our reputation can also have an indirect financial impact. KRONES mitigates environmental and safety risks with high technical standards in production, training, rules of conduct and insurance policies customary in our industry.

Impact of environmental and safety risks: We rate the maximum loss as high, the likelihood of an event as low, and the financial impact as low.

IT risks

All of KRONES' material business processes are based on functioning IT systems. The risks here are failure or malfunction of or unauthorised access to critical systems. Such events could result in the loss of important confidential data. KRONES uses internationally recognised IT security measures to protect against these risks. We have redundant IT systems in place for critical business pro-cesses.

Impact of IT risks: We rate the maximum loss as medium, the likelihood of an event as low and the financial impact as low.

Overview and description of material opportunities

Material opportunities

KRONES does not record business opportunities within the risk management system. For this reason, we do not report in the following on likelihood of event or possible financial impact. We describe opportunities in general below.

General economic opportunities

General economic opportunities arise for KRONES as a result of the company's good international positioning. We stand to benefit if the economy in individ-ual world regions develops better than experts have predicted. In particular, KRONES has considerably strengthened its market position in the emerging markets in the Asia-Pacific region and in Africa and the Middle East in recent years. Additional opportunities would therefore arise for us if the economy in emerging markets grows faster than expected. International Monetary Fund experts likewise expect a slight recovery in economic growth for 2021 in the euro area and the uSA. If the growth momentum is stronger than expected in these regions, this could result in revenue and earnings above our guidance.

Industry-specific opportunities

Beverage and food producers are increasingly focused on conserving energy and other resources. There is a chance of this trend intensifying and customers being more willing to accept higher prices. That would open additional selling and revenue opportunities for KRONES due to the company's competitive ad-vantages in this area. With enviro, our certified management system, we have established the basis for ensuring that KRONES machines and lines feature es-pecially low energy and media consumption. The company has also developed a competitive advantage here.

Digitalisation also presents considerable additional sales and revenue opportu-nities for KRONES. Customers expect KRONES' smart machines and lines to

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reduce their operating and labour costs. KRONES already has a number of products and services in the "digital beverage plant" portfolio and intends to further extend its position in the growth field of digitalisation.

Opportunities arising from acquisitions

KRONES' focus in 2021 is on integrating past acquisitions. No major acquisitions are planned for 2021. If potential acquisitions present themselves, however, its solid financial position and capital structure enable KRONES to seize opportuni-ties for external growth. Acquisitions are not included in our earnings fore-casts. External growth could open up opportunities for KRONES.

Operational opportunities

• 1. Selling prices

  KRONES aims to achieve its target for earnings improvement by way of a better cost base. In addition, aſter the crisis year in 2020, we are once again making sustained efforts to uphold the price increases for all bottling and packaging equipment and process technology. If market prices should de-velop better than expected, this would yield opportunities for the company.

• 2. Procurement prices

  The company increasingly buys standardised parts and complete assem-blies from suppliers. In addition, KRONES increasingly procures materials locally at the company's locations worldwide and in best-cost countries. The opportunity exists that, overall, we might save more in this way than fore-cast. Additional opportunities arise if commodity prices are generally lower than expected.

3.

Costs

KRONES has launched a range of short-term and structural measures to optimise the company's cost structure. Opportunities arise for KRONES if specific measures have greater or more rapid effect than planned.

Summary of risks and opportunities

Viewed from today's perspective, KRONES is not exposed to any going concern risks.

Compared with the previous year, our assessment of the risks and opportuni-ties has not materially changed. The main risks remain in the general business environment and in industry-specific and financial risks.

ManageMent RepoRt Events after the reporting period

Events after the reporting period

There were no material events aſter the reporting period.

ManageMent RepoRt Expected developments

Report on expected developments

• " Positive global economic outlook for 2021

• " krones expects slight upturn in business this year

• " Adjustment measures strengthen krones' profitability in 2021

Global economy expected to grow in 2021 by 5.5%

In January 2021, the International Monetary Fund (ImF) forecast global eco-nomic growth for 2021 of 5.5%. This year is therefore likely to make up for the 3.5% contraction of the economy in 2020. The positive outlook is based on hopes of the Covid-19 pandemic subsiding as a result of vaccinations. In addi-tion, economic stimulus is likely to come from large investment programs an-nounced by various governments, particularly in the uSA and Japan. Finally, central banks will support the recovery with their continued loose monetary policy. The experts expect that aſter a somewhat slow start, growth will acceler-ate from the second quarter of 2021 onwards. According to the ImF economists, risks of downward corrections mainly relate to the further path of the pan-demic. If more contagious mutations make the coronavirus harder to contain and vaccinating populations takes longer than expected, growth is likely to be lower than projected.

The International Mone-tary Fund forecasts that the global economy will grow by 5.5% in 2021.

Growth in emerging and developing economies is likely to pick up significantly compared with the weak prior year, at 6.3% in 2021. As in the previous year, the growth driver is China. The ImF forecasts

8.1% growth in gross domestic product (GDP) for the Chinese economy in 2021. Following the sharp contraction in 2020, economic output in India is expected

Percentagegrowth in

(forecast)

+ .

Source:

to increase in 2021 by as much as 11.5%. The ImF expects less dynamic growth for the Middle East/Central Asia region. There, the experts forecast GDP growth of 3.0%. In Latin America, the economy is expected to grow in 2021 by 4.1%.

With regard to the industrialised economies, the ImF expects GDP growth of 4.3% in 2021 due to more rapid vaccination of the population and ongoing low interest rates. For the euro area, the ImF forecasts 4.2% growth. The experts ex-pect a less rapid growth recovery in Germany, where they forecast a 3.5% GDP increase in 2021. Due to the large fiscal incentives in the uSA, GDP in the world's largest economy is expected to grow in 2021 by 5.1%. Japan should also benefit from government support programmes. The ImF is forecasting growth there of 3.1%.

ManageMent RepoRt Expected developments

Low inflation rates and solid employment figures support consumptionMachinery sector expecting rise in output

Source: Statista

* Forecast

Consumer spending is a key factor determining the propensity of KRONES' customers to commit to capital expenditure and, consequently, the level of de-mand for beverage filling and packaging equipment. Low unemployment and inflation rates have a positive effect on consumer's buying power. They there-fore support demand for packaged food and beverages and indirectly influence demand for KRONES' products and services. For 2021, we expect that a slightly higher unemployment rate and ongoing low inflation will not have an overall negative effect on KRONES' business.

* Forecast

Source: Germany's Federal Statistical Office,

Germany's Mechanical Engineering Industry Asso-ciation (VDmA) expects that the slight upswing in the economy will also have a positive impact on the industry in 2021. The VDmA expects machinery and industrial equipment output to rise 4% year-on-year. This forecast is subject to a high degree of uncer-tainty, however. For one thing, economic growth

The German Mechanical Engineering Industry As-sociation (VDMA) expects a sectoral recovery in 2021. It forecasts 4% output growth compared with the crisis year in 2020.

remains fragile. For another, there are concerns of increasing protectionism because German mechanical engineering has an export share of around 80%. The recovery could also leave machinery manufacturers facing tight liquidity as they have to make advance payments.

ManageMent RepoRt Expected developments

krones cautiously optimistic going into 2021

Aſter a difficult year in 2020, KRONES is cautiously optimistic at the beginning of the 2021 financial year. However, there are still sufficient reasons for some caution. While the economic forecasts for this year are positive overall, 2021 will once again be marked by political and economic uncertainties. In particu-lar, it is not yet possible to predict the further impacts of the coronavirus on the global economy. The same uncertainties are also affecting order placement by KRONES customers. Although consumer demand for packaged beverages is ex-pected to continue rising in 2021, companies in the international beverage in-dustry are holding back on investment due to the unstable overall economic situation. Overall, we therefore expect the global market for bottling and pack-aging equipment, along with selling prices, to stabilise at a relatively low level in 2021. Competition in our markets and cost pressure will again remain strong this year.

The medium- and long-term outlook remains positive. This is because con-sumer demand for packaged beverages and liquid foods is steadily growing due to a number of megatrends such as the growing world population.

Both segments should stabilise in 2021 and recover over the course of the year

KRONES' focus this year will be on continuing to implement the adopted structural measures in order to quickly adjust cost structures to the lower level of revenue. In addition, we aim to use growth opportunities throughout the Group with innovations and future-ready products and services. No major ac-quisitions are planned in either segment for 2021. The goal is to increase profit-ability in both segments this year.

In the core segment, Machines and Lines for Product Filling and Decoration, KRONES is placing increased focus - alongside cost reductions - on the core competencies of sales, engineering, final assembly and lifecycle service. The company additionally intends to use these core competencies to enter new markets. KRONES will also continue to focus on its strengths in order to con-solidate and extend its market position. For example, KRONES intends to use its extensive line expertise to win more customers for efficient and reliable filling and packaging lines. Its leading position in terms of sustainability is also ex-pected to support growth for KRONES. Customers want to, and have to, save resources. KRONES is ideally positioned here with its resource-saving enviro products and sustainable PET solutions.

For the core segment in 2021, KRONES expects 2% to 3% revenue growth. The EBITDA margin is expected to be around 8.0% to 9.0%.