Letter to our shareholders

2007: a record year in all aspects

The combination of relatively positive market conditions in most parts of the world and reaping the fruits of the successful transformation process of the Group launched at the end of 2004, resulted in achieving record financial figures in 2007. The Group’s turnover has increased by CHF 140m (or +8.7%) to reach CHF 1'744m. This increase is composed of 7.4% organic growth and 1.3% due to the net favorable exchange rate evolution compared to 2006. The numerous product innovations launched over the past years have also strongly contributed to this growth above expectations, despite strong competition and a difficult exchange rate situation in the USD zones. The excellent progress in implementing numerous important projects within the Program GO has also allowed the Group to achieve a record level of Operating Profit of CHF 188.1m, which represents an increase of 56.6% compared to the published Operating Profit in 2006, or 64.0% compared to the underlying Operating Profit. Both 2006 figures were already at record levels. The Net Profit evolution followed the same pattern and has reached CHF 138.1m compared to the CHF 103.3m published Net Profit in 2006, an increase of 33.7%. Comparing this record Net Profit to the 2006 underlying Net Profit of CHF 80.6m, which represents an increase of 71.3%, shows even better the progress made in 2007. 2007 thus allowed the Group to beat the mid- to long-term profitability target of Operating Profit margin to sales of 7.5% to 8.5% by reaching 10.8%. At the same time, the mid- to long-term Net Profit margin of 5 to 6% of turnover has been surpassed with a healthy 7.9%. These targets were valid until 2007 and have already been revised upwards for 2008 and beyond.

Important progress in operational efficiency and flexibility

Customer demand resulted, similar to 2006, in a quite unbalanced year 2007. The turnover of the first half of the year increased by 10% to reach CHF 712m, while during the second half, initially expected to be at a similar level to the record of CHF 956.2m in 2006, it surpassed all expectations to reach CHF 1 031.6m. Of course, this created a very challenging operational environment. Thanks to the many measures taken to increase the Groups’ capability to adapt to fluctuating market conditions, the very unbalanced workload could be absorbed. With this high level of activities and the generally favorable economic environment, the Group faced difficulties during the whole year in obtaining all its raw materials, components and parts from suppliers, and in finding the necessary qualified personnel. At times, this situation of scarce resources resulted in a challenge to keep good quality of equipment, spare parts deliveries and of services.

All three Business Areas: strong development

In the Business Area Folding Carton, turnover and operating profit again reached record levels after an already very strong year in 2006. The new equipment developed since DRUPA 2004 triggered strong interest among the Group’s customers. The development of intensive production activities in Brazil and China allowed excellent progress in the penetration of the newer and fast growing economies. In other words, the focus set on innovations and optimizing the manufacturing footprint were the key success factors that led to this positive development. In 2008, the DRUPA exhibition in Dusseldorf (May 29 – June 11) will be an excellent opportunity to once more show Bobst Group high productivity and high quality equipment to the world of packaging converters. The Corrugated Board Business Area also experienced a very successful year in 2007. Both turnover and operating profit reached record levels. The majority of the operational and technical challenges that this Business Area was facing have been well mastered or are in progress towards resolution. In this field of activity, the Chinese and Indian markets are only at the very beginning of their productivity development and, therefore, of their need for automated production equipment. This keeps a very interesting growth door open for the future. In the Central and Eastern European markets, as well as in the CIS, the Business Area Corrugated Board enjoyed interesting and promising success. Market presence in the US was maintained during 2007, despite the difficult Euro and Swiss Franc vs. USD exchange rate situation. The Business Area Flexible Materials surpassed its goal of reaching breakeven at operating profit level. The many efforts put into turning around this business segment are now paying off. This confirms that the Flexible Materials equipment and services market can bring interesting opportunities for profitable growth in the future. Based on this performance confirmation, the Business Area investigated further expansion possibilities, which resulted in the announcement of the Group’s intention to acquire the German company Fischer & Krecke GmbH, a leading player in the flexographic printing equipment market. The acquisition has been cleared by the German Federal Cartel Office. The due diligence process has given a clear view of the situation in this company and of the actions to be put into place once the closing of the deal will be completed.

Program GO: a success

The end of 2004 saw the launch of a productivity improvement program called GO (Group Optimization), which was completed at the end of 2007. The two originally set goals - reaching a Net Profit of over CHF 90m and reducing capital utilization by CHF 200m over a 3-year time span - have been overachieved. In 2007, the overall economic situation was, of course, favorable to the profitability goal, but the tight suppliers’ market gave significant headwind to the reduction of inventories. Priority was given to customer satisfaction. It is worth mentioning that this program also allowed the Group to introduce an excellent change dynamic, which is a strong foundation to further drive its transformation within the framework of the strategy review performed in 2007.

Strategy review: Further growth potential identified

During 2007, the Board of Directors and the Group Executive Committee decided to undertake a full strategy review of the Group. The coming to an end of the Program GO and the need to identify further growth opportunities and reevaluate the portfolio of activities of the Group were the main reasons to launch this important project. It was also decided to draw on the expertise of renowned outside specialists. The main conclusion of this 360° analysis can be summarized as follows: the Group’s configuration today has sufficient potential to make it one of the most attractive investments in the field of engineering companies. Growth opportunities in the core business, acquisitions in neighboring fields, operational excellence and streamlining the Group’s organization and processes will offer potential for the next four to seven years. The key elements of this strategy are presented in this annual report, including the new and ambitious yet realistic, mid- to long-term financial goals. Based on this strategy review, the Group Executive Committee has been modified. The separately managed market organizations have been integrated into the three Business Areas as already announced at the beginning of October 2007.

Outlook 2008

The Group started 2008 with a backlog slightly higher than at the beginning of 2007. The uncertainties created in the financial markets will probably have an effect on the Group’s activities, but, at this point in time, they are difficult to quantify. In this more difficult environment, the 2008 Net Profit will most probably be below the Net Profit of the record year 2007. 2008 will be a year of consolidation.

Annual Shareholders Meeting 2008

The mandates of Messrs. Thierry de Kalbermatten, Vice Chairman of the Board, Luc Bonnard and Christian Engel, members of the Board, come to an end. All three of them have agreed to present themselves for re-election. As already announced, the Board of Directors will propose a special payout to shareholders of CHF 250m in addition to the dividend per share of CHF 3.50 (paid in 2007: CHF 1.90), which corresponds to a payout ratio of 50%. With this, the cumulated payout to shareholders of the last 12 years amounts to CHF 1'059m. On behalf of the Board of Directors and the Group Executive Committee, we warmly thank the management and personnel of the Group. Their strong commitment and their identification with the Group and its companies have allowed such positive 2007 results.

Charles Gebhard Chairman of the Board Andreas Koopmann Chief Executive Officer