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Stig Gustavson, President and CEO:The year 2004 marks yet another turning point in the historywhole ranges of new products, we have won market share. Andof our Group. After a few years of low investment activity andwe have completed a number of successful acquisitions.low, even negative growth in our main markets, the sentimentThe business situation for the Group, at the end of 2004has now changed. During the year, the Group recorded anresembles that of ten years ago: The Group has recently beenover 20 % increase in new orders. Disregarding the currencythrough a thorough re-engineering leading to a sharper com-changes (notably the slide in the value of the US dollar) thepetitive edge, the Group’s markets grow and the Group hasorders growth was 24 %. Total sales for the Group will developembarked on an ambitious acquisition program.accordingly, and the growth now, 10 %, only marks the begin-In 1994 we had abandoned crane welding at 19 locationsning of a fine development to come. Our profits developed inworldwide and centralised the production of key components forline with sales.scale benefits. In 2004, we restructured noble-parts productionand moved from largely Finland-based production to a globalOn April 15, 2004 the KCI Konecranes Group celebrated its firstprocurement network, using low-cost suppliers when applicableten years as an independent company, and its first eight years asand upgrading our own production for efficiency. The result thena listed company.– and now – was and is a sharply increased cost efficiency inDuring these ten years the Group has doubled its sales andcomparison to our competitors. In 2004 as we go forward, weprofits and grown its number of personnel with 56 %. During thesee vast possibilities for further cost improvements, like we did inwhole period the Group has maintained a strong balance sheet.1994.The Group has increased its yearly dividends threefold, investedIn 1994 Scandinavia and Europe were coming out of reces-in growth, acquisitions and increased working capital due tosion. The Group was well positioned to ride the wave of stronggrowth. The Group has grown its operations to cover 35 nationsdemand. In 2004, our Chinese venture produced impressiveglobally, and has taken the world lead in its business.numbers. The rest of our Asia-Pacific operations also started toNaturally, there has been both rain and sunshine on the way,develop well, and the American market has started to grow. Infull storm and favourable sailing. We have encountered currencyEurope, the investment climate remained low, but with increasingturbulence, war in Iraq, SARS in Asia, European recession. But wemarket shares we managed to find growth also in Europe.have also encountered rapid growth periods, we have launched6K C IAP KCI LAYOUT 3.9.indd 6K O N E C R A N E SIn 1994 we were rapidly increasing our presence in the indus-2 0 0 423.2.2005 08:48:15

trial cranes market through a number of acquisitions. Those acqui-its meeting on June 17, 2005. This decision is naturally subject tositions also contributed to a rapid build-up in terms of installeda re-election of the Board in substantially its present form at thebase, the prerequisite for growth in Maintenance Services. In 2004AGM on March 10, 2005.we embarked on a new strategy for increasing our presence in theAs Chairman, I cannot continue my duties as CEO, and theharbour markets for cranes and maintenance. Having proven ourBoard therefore also reconfirmed its previous intention to appointstrategy of providing first class maintenance services in combina-Mr. Pekka Lundmark as my successor. The Board intends to maketion with top class cranes for industrial customers, we now wantthis appointment also in its meeting on June 17, 2005, i.e. my 60thto expand that way of operations to the ports sector.birthday. Björn Savén, Chairman from the birth of the CompanyThe acquisition of SMV Lifttrucks AB of Sweden, now SMVon April 15, 1994 has confirmed his willingness to continue as aKonecranes AB, marks our desire to increase our activities in themember of the Board of Directors, and it has announced its inten-market for container handling equipment, in ports but also intion to elect him as Deputy Chairman.industry. This increased presence is helping us to promote ourmaintenance services in ports.Here I want to express my sincere and deeply felt appreciation of Björn Savén’s long duty as the Group’s Chairman. UnderIn 2004 we also continued our acquisition strategy for indus-his inspiring leadership the Group has developed from the pio-trial cranes. With the inclusion of Morris Material Handling Ltd ofneering early years to a blue-chip world leader, with a recognisedthe UK we enhance our positions in the UK.standing in the entire industrialised world. I am equally thankfulIn one aspect the 2004 situation differs from that of 1994.Ten years ago our main manufacturing base currency, the Finnishfor Björn Savén’s continuing support to the Group in the form ofhis future role as Deputy Chairman.Markka, was trading at very favourable rates towards almostThe past ten years have been full of achievements. However,all other currencies, adding greatly to our competitive strength.I am even more excited about the future prospects for the Group.Today the EUR/USD exchange rate is certainly not favourableIn many aspects the Group’s present trading resembles that offor Europe-based manufacturing. We were burdened during 20041994. Then, and now, we are inspired with pioneering enthusi-under the unfavourable exchange rates – however, our increasingasm. Then, and now, we are looking forward to fast growth ofmanufacturing base in China and our US operations will reduceall Group activities. We are all fully confident of Mr. Lundmark’sthat disadvantage during the course of 2005.ability to take on the responsibility for the top job in the Group.R&D has always played a pivotal role for the Group’s success,Following an old tradition I wish to extend a warm thank-both in 1994 and very much so, in 2004. In 1994 the XL seriesyou-so-much to all customers, shareholders, colleagues and otherof Standard Lifting was the newest product range on the market.stakeholders, this time not only for a successful year 2004, but forToday, the recently launched CXT is the best selling range in theall the time I have had the honour of steering the ship, in factworld of Standard Lifting Equipment. In Special Cranes we havealready from the early KONE days from January 1, 1988.seen a continuous stream of product innovations: the AGD-bulkhandling technology, the BoxHunter container handling technol-Stig Gustavsonogy, the 16-wheel and now also the 8-wheel all electronic RTG,President and CEOthe Munckloader shipboard crane and many more. Much oftoday’s efforts go into the harbour equipment sector, with a special emphasis on modern maintenance tools.On February 11, 2005 the Board of KCI Konecranes announcedits intention to elect me Chairman of the Board of Directors inK C IAP KCI LAYOUT 3.9.indd 7K O N E C R A N E S2 0 0 4723.2.2005 08:48:19

Strategic cornerstonesKCI KONECRANES STRATEGYThe KCI Konecranes Group strategy is based on the combination of twoglobal activities- supplying cranes and providing maintenance servicesfor a global customer industry base. Growth, innovation and efficiencyare the three cornerstones of this strategy.GrowthInnovationEfficiencyKCI Konecranes’ leading driver for organicMaintaining the lead in technology isKCI Konecranes endeavours to be the costgrowth is its maintenance services busi-the way forward in this industry. KCIleader with the lowest unit costs in theness. An estimated 70 % of all craneKonecranes is committed to develop-industry. This is achieved by employingmaintenance is still carried out by theing innovative lifting solutions and newnew technology and cost-efficient designs,crane owner’s in-house staff. Outsourcingtechnologies for preventive maintenancebased on modularity and standardisation.of crane maintenance to profession-services. KCI Konecranes’ R&D enjoysMaintaining a globally uniform productals improves cost efficiency, safety andthe benefits of the world’s largest main-platform gives flexibility in capacity uti-increases uptime. We believe the demandtenance agreement base with informationlisation and allocation of resources. Onfor increasing outsourced crane mainte-on both own and competitor equipment.the supply side, KCI Konecranes globalnance will prevail and provide growthKCI Konecranes focuses on developingoperations also provide access to theopportunities for several decades to come.superior product features with the aim ofmost cost efficient sourcing opportuni-The consolidation of the crane industry ismaximising uptime for the equipment withties. The ongoing efficiency improvementalso in the early stages of its development.minimum operational and maintenanceprograms continue to target opportunitiesWe believe this industry will follow thecosts over its lifetime. Our R&D resourcesavailable in global manufacturing andsame development as in most other indus-remain unmatched in this industry.sourcing. Compared to our competition,tries. KCI Konecranes has the financialour sales productivity is boosted by ourand managerial resources available to playsize, geographical market coverage andan active role in the consolidation of thebusiness concept of combining crane salesindustry. Well-recognised local, national orand maintenance through one commonregional brand names with large installednetwork.bases remain the primary targets for KCIKonecranes’ acquisition policy.8K C IAP KCI LAYOUT 3.9.indd 8VISIONBUSINESS OBJECTIVEKCI Konecranes’ vision of its industry's future isOur objective is to maximise lifting availability forthat of an industry producing high performing,our customers while at the same time minimisingreliable and safe lifting solutions with world-classtotal lifetime costs, i.e. the total of capital, operat-maintenance back-up. In this development weing and maintenance costs for the equipment. Wewant to take and hold the lead.want to create value for our shareholders.K O N E C R A N E S2 0 0 423.2.2005 08:48:20

“Growth, Innovation& Efficiency”KCI KONECRANES – ONE BUSINESS MODEL WITH MANY FACESAs the technology leaders in overhead lifting equipment andtion on thousands of cranes of different manufacturers, whichcrane maintenance, KCI Konecranes is reshaping its industry. KCIinspires KCI Konecranes R&D staff to find new generations ofKonecranes caters for a basic need in all industrial activity andlifting and service technologies. By nature, maintenance serv-sees an ever-increasing demand for its products and services.ices are less exposed to cyclical variations in the world marketKCI Konecranes main tools are service quality, innovation andcompared to equipment sales and therefore help even out thea global presence. KCI Konecranes’ three business areas areeffects of investment cycles. KCI Konecranes global presenceinterlinked by a high degree of synergy. Every service call fuelsand widespread customer industry base also even out the effectsgrowth in the crane and equipment operations and every craneof cyclical swings in investments, both geographic and industrysale creates opportunities for providing maintenance services.specific ones.KCI Konecranes’ maintenance agreement base holds informa-CORE VALUESTrust in PeopleWe want to be known for our good people.Total Service CommitmentWe want to be known for always keeping our promises.Sustained ProfitabilityWe want to be recognised as a financially sound company.Read more about KCI Konecranes’ values on page 24.K C IAP KCI LAYOUT 3.9.indd 9K O N E C R A N E S2 0 0 4923.2.2005 08:48:21

Maintenance ServicesPart of Group Sales“Growth and acquisitions”44%Part of Group Personnel60%Growth rediscoveredMaintenance Services consists of all activities related to keeping machines availablefor safe, reliable and uninterrupted service. We provide services for all overheadcranes regardless of original manufacturer. More than 80 % of all cranes and othermachines included in our service agreement base have not been manufactured by KCIKonecranes. Key products are inspection services, preventative and predictive maintenance, spare parts services, performance upgrades and large modernisations.VisionMachine maintenance is a genuine growth market. KCI Konecranes’ vision is to use itsworld leader position in maintenance services to sustain and accelerate growth. Wewant to contribute to the development of new maintenance technologies.StrategyWe see trouble source elimination as the best form of preventative maintenance. Ourcornerstones are a highly skilled work force, long-lasting customer relationships in theform of ongoing maintenance agreements and growth through increasing outsourcingof maintenance. An estimated 70 % of all machine maintenance is still carried out bythe owner’s own staff. We are committed to innovative maintenance technology solvingold problems with new technology. Our focus is always on preventive maintenanceand elimination of potential future trouble. Our objective is to maximise availability forthe equipment while minimising the overall operational and maintenance costs for themachine owners. From a base in the production industry we apply the same strategyin harbours. In the engineering industry where we have reached a high penetrationrate, we branch out into maintaining other machine tools.Key Figures20042003ChangeSales, MEUR344,6338,81,7 %23,322,44,0 %Operating margin, %6,8 %6,6 %Order intake, MEUR308,426914,6 %Personnel268526222,4 %Operating income, MEUR10K C IAP KCI LAYOUT 3.9.indd 10K O N E C R A N E SWith 2004, new orders growth in MaintenanceServices is back on a historically “normal”level: 15 % growth over 2003, 19 % whencounted in comparable currencies.For some years, low industry utilisation rates and a high level of change in theindustrial landscape have kept the growth ofour maintenance operations on a lower level.In fact our rates of receiving new businesshave always remained high. However, duringturbulent times our ability to retain a goodworkload has suffered as our customers suffer from low utilisation and are forced to cutcapacity or even to close production lines. Asa consequence, the net growth was lower,although always positive.Now, with more stable conditions and amore positive sentiment among customers,new orders net growth is back to familiar twodigit levels.The many faces of Maintenance ServicesIn contrast to most other crane builders andthe engineering industry in general, we donot rely on a large installed base of productsmade by ourselves. We do not rely on a highlevel of high margin spare parts sales to a“captive” clientele.Instead, we rely on our ability to offera truly economical and safe approach tomaintenance. We offer a long term relationship with our client, we offer safety, stabilityand reliability. Our services offering is large,covering all maintenance actions, not onlyspare parts. We benefit from our customer’sbenefit.From a solid platform within industry,we now increase our efforts also to cover theharbours. Through the acquisition of SMVLifttrucks AB of Sweden in 2004 we haveimproved our positions to be able to crediblyoffer a wide range of maintenance services tothe ports. Here we are still at the beginning ofwhat we see as a very interesting and promis-2 0 0 423.2.2005 08:48:29

Tom Sothard, Business Area Presidenting development.We see a general interest among midsized harbours, most of them municipallyor government owned, to increase their useof outsourced services. Here, maintenanceis often one of the first targets to be considered.We must, however, also understand thatharbours have very long standing operationaltraditions. Breaking with these traditions willnot be an easy task, nor will it be completedovernight.We are also involved in the maintenanceof “non-crane” machines. We have found thatour business model, with its focus on preventative maintenance, is equally well suitedfor other maintenance work as well. We arealways anxious to demonstrate our technical competence, so we limit ourselves tothose machine tools we know, which are themachine tools of the engineering industry.Retention rateDue to rapid structural changes in the globalindustrial landscape, we have encountereda high volatility in our maintenance servicesagreement base. We have tried to capture this“churn” by reporting “new contracts gained”in contrast to “old contracts lost”, the balancebeing “net growth”.This reporting is not too well defined. Wehave now adopted a new method of reportingthe underlying development in the form ofthe retention rate. The retention figure simplyindicates the percentage of total maintenancecontract sales that came from customers thatwere our customers already 12 months ago.The retention rates for the last three yearshave been:Retentionrates200285,2 %200385,3 %200490,6 %Service technicians Timo Ruokonen and Vesa VuoriThe improvement of the retention rate during2004 will have a positive impact on BusinessArea profitability.AcquisitionsDuring 2004, in October, the Group acquiredthe Swedish company SMV Lifttrucks AB, nowSMV Konecranes AB. The immediate effect onMaintenance Services of this acquisition willbe limited to spare parts for an existing fleetof 1,500 machines.However, this acquisition enhances ourmaintenance and new equipment presencedirectly and indirectly in the important harbour sector.On December 31, 2004 the Group acquiredMorris Material Handling Ltd. of the UK. Thiscompany works totally within the present corebusiness of the Group, with Standard LiftingEquipment and related Maintenance. The sizeof Morris’ maintenance operations is nearly17 MEUR. UK Morris’ network of 16 servicebranches, operating under the Morris name,form an ideal second leg to the Group’s existing network.Morris and Lloyds British Testing Ltd, theorigin of the Group’s UK maintenance network (now Lloyds Konecranes), both sharea history as previous subsidiaries of DavyEngineering.Now, with the companies together again,we are marrying KCI Konecranes maintenancemethodology and resources with the core ofBritish crane customers. A winning combination!MarketsIn industry both in America and in WesternEurope we see a return to more stable conditions. This automatically fuels the growthof our maintenance sector, as demonstratedalready in 2004.Our maintenance approach, with its heavyreliance on the preventative aspect, has notpenetrated the industrial markets of South EastK C IAP KCI LAYOUT 3.9.indd 11Modern maintenance diagnostic toolsLarge UK modernisationModernisation activities improvedin 2004 with a strong ordersdevelopment especially duringthe second half of the year. Asone noteworthy order in 2004,KCI Konecranes won a prestigious contract for the refurbishment of five cranes withinthe BAE Systems Submarineconstruction facility at Barrowin-Furness, England. Within thislarge contract we will designand build new hoisting trolleys for large span single girderMonobox EOT cranes. Thesecranes were originally suppliedby Konecranes (UK) Ltd in the1980s. The contract value wasnot released but was indicatedas substantial.Work on this project commenced with the design phaseduring the summer of 2004.Manufacturing will start in 2005.Final completion and handover is scheduled for late 2006.The project is being handledby Konecranes (UK) Ltd inGlasgow. KCI Konecranes welcomes the opportunity to contrib

Aug: Konecranes into Italy A new subsidiary Konecranes S.r.l. was established to give Italian customers' easy access to the entire KCI Konecranes product range including preventive crane Shanghai General Motors, China Li Wei, assembly worker, Shanghai, China AP KCI LAYOUT_3.9.indd 4 23.2.2005 08:48:01