Baldwin Technology Letter to Shareholders

Dear Shareholders,
Baldwin Technology's customers, its employees, and the working relationships between the two, were important contributors to the accomplishments of Baldwin Technology in fiscal 2006. These relationships, when combined with the strong operating performance of the company’s products and technology, formed the foundation for the good results that Baldwin Technology, and you, our shareholders enjoyed this past year.

This performance was a continuation of the positive momentum achieved by Baldwin Technology during the last several years. This time frame has been characterized by a broad company-wide focus on meeting customer demands, the enhancement of our competitive position in global markets, and the attainment of solid financial performances. We again were able to improve our margins, generate strong cash flow and increase our earnings per share. Operationally, we continued to execute on many strategic initiatives, including outsourcing of manufacturing and invigorating new product development. We are pleased to note that our customers have been enthusiastic about the new accessories and controls products that we have brought to the market in recent years.

These results were achieved in a rapidly changing environment of tough price competition and growing challenges to print media. Nevertheless, we expanded our market share as a provider of accessories and controls for the global offset printing industry. By intently focusing on our core competencies, including our ability to deliver well-designed, reliable products at a competitive price, we succeeded in creating added value benefits for our customers.

Underlying these internal achievements was a robust external global graphic arts market. We saw stable economic performances in the more developed areas of the world, continued expansion of print markets in the emerging areas of the world including China and India, and the major press manufacturers generally reporting strong increases in their orders and sales. The vigorous growth of the press manufacturers has also helped to drive demand for efficiency-enhancing products such as our new generation of IMPACT blanket cleaning systems that offer multi-position, state-of-the-art technology as a precise and economical method for cleaning one, or two, blankets with either our dry or pre-soaked PREPAC cloth.

Although we don’t measure our performance exclusively in numbers, our results for the fiscal year ended June 30, 2006 showed a successful year financially. Net sales for the year rose 3.6% to $179.4 million, compared with net sales of $173.2 million for the year ended June 30, 2005. Excluding the unfavorable impact of currency translation, sales would have been up 8.4%, another $8.4 million, from the prior year. Net income was $6.3 million or $0.40 per diluted share, compared to net income of $5.0 million or $0.33 per diluted share in fiscal year 2005. Our order backlog at year-end was $49.2 million, up from $48.1 million a year earlier.

During the year we stepped up our investor relations effort with new stock market research coverage from Standard & Poor’s and Dutton Associates. Fresh investor exposure was achieved through a series of conferences and meetings with institutions, many of whom have been increasingly receptive to our story. We were quite pleased when Baldwin was added to the Russell Microcap™ Index, a reflection of the growth in our market capitalization.

 As we start fiscal 2007, we can report that a number of important initiatives are underway. At Baldwin Japan, Dr. Ichiei Imafuku has been appointed as President. Dr. Imafuku is a strong, highly competent executive who will provide vital leadership in one of our most important markets. In July, we were also awarded our largest single order ever from the Nikkei Newspaper Group in Japan. Our new website, which provides an important interactive tool for our customers and investors, was launched in late March. We remain tightly focused on serving our global customer base as we strive to further strengthen our position in core markets and make further improvements in our cost structure. During the latter part of September, 2006 Baldwin Germany moved into its new facility; we believe the company will see further cost reduction benefits as a consequence of this move. We also expect sales and marketing benefits from our newly established Baldwin’s sales unit in Italy.

 In an important management change, Karl S. Puehringer, who had been heading up our operations in Europe was named President and COO in July 2005 and joined our Board of Directors this spring. Karl has been a significant part of our success and is playing an increasingly important role in shaping our future. We were also pleased to add Ron Salvagio, President of PRSM, Inc., to our Board in June. Ron previously had 15 years of global accounting and consulting experience at Accenture. Subsequent to year-end, in August, Fred Westlake also joined our Board. Fred previously was Chairman and CEO of First Technology PLC, a U.K. based international business listed on the London Stock Exchange.

 Over the past few years we have built a sturdy platform for the future expansion of Baldwin’s business. We have overcome the setbacks experienced several years ago and we are ready to take the company to the next level with an experienced and proven management team. The company is strong and we are confident in our objectives and in our purpose. All the elements are in place for continued profitable growth. As this report was being completed, we have announced the signing of a definitive agreement to acquire Oxy-Dry Corporation, a $38 million privately held company that produces accessories and controls for the printing industry. We expect this acquisition will further strengthen our product platform and market position.

The commitment of our employees, Baldwin’s broad technology and know-how base, and the company’s global infrastructure within the printing industry, all help to closely link us to our customers. These elements are fundamental to our continued success and are the basis on which we earn the trust and confidence of our customers, employees, suppliers and investors. We are grateful for the support of all of them as we continue to build shareholder value for you.
We are also grateful for the long and productive service of our former Chairman Emeritus, Harold Gegenheimer, who unexpectedly passed away this week. We acknowledge his many contributions and will remember his innovative spirit.