CHAIRMANS' REPORT

LADIES AND GENTLEMEN

HUBER+SUHNER returned to strong growth in 2004 after a tree-year's period of difficulty. The company recorded double-digit growth in its continued activities and was able to significantly improve earnings power in all market segments after gaining market share across a broad range of activities. As described in detail by the CEO in the "Report on the business year", the full effects of the restructuring program that was successfully concluded in 2003 were felt for the first time in 2004. This was a major contributory factor in the positive trend reversal. In addition to impressive organic growth, the good result was also due to improved operating conditions, with a slight recovery in both the global economy and the markets in which we operate. The speed of change in demand in some areas proved a constant test of our ability to adapt. We convincingly demonstrated in 2004 that we have the operational flexibility we require; all staff made significant efforts to cope with the large jump in incoming orders at the start of the year. We are therefore confident that we are well equipped to handle similar challenges in future.

DIVERSIFICATION PAYS OFF
The strategy of balanced diversification across the three main markets – communication, transportation, and industry – was rigorously applied and certainly bore fruit. We anticipate further potential to develop in all the market segments we supply; in particular the industrial market, where the capital expenditure rose substantially became the biggest contributor to sales for the first time. We generated significant organic growth and successfully expanded our customer base, which impacted positively on demand. Communication is one of our main markets and will undoubtedly continue gaining in attractiveness thanks to ever-greater numbers of user-friendly, inexpensive services, further improving the potential for development. At the same time, however, market participants are facing enormous price pressure. Our core competencies, decades of experience, and strong presence in mobile communications in particular mean we are well positioned. Transportation also offers good prospects, due above all to the continued expansion of public transport and further as yet untapped potential in the auto market.

INCREASED SHAREHOLDERS' EQUITY
Our healthy consolidated balance sheet and strong equity ratio – the result of decades of sensible financial management – greatly supported and eased the difficult restructuring process of recent years. Operating profit increased significantly on the back of successful realignment within our core competencies, steady margin improvements, and tough cost control. The same applies to net income, which grew strongly. The equity ratio climbed from 63% to 68%, giving us even greater operational flexibility. HUBER+SUHNER can look to the future from a position of strength, based on the increased earnings power, good debt and liquidity position, and strong equity base. More than ever, business development should be financed through shareholders' equity alone. We are in principle open to the possibility of acquisitions, provided that they fit our portfolio and offer substantial added value with adequate earnings potential.

DIVIDEND INCREASE PROPOSED
The stock market has rewarded our strong earnings performance and successful turnaround with a further increase in our share price, which stood at CHF 54 at the end of 2003 but had risen to CHF 79 by the end of 2004, a rise of 46%. In view of the pleasing increase in net income, the Board of Directors has decided to propose to the General Meeting that a dividend of CHF 2 (previously CHF 0.50) be distributed per registered share.

TRANSITION TO IFRS
As announced previously, from 2005 onward financial reporting at HUBER+SUHNER will be in accordance with IFRS. The material impact of the change is likely to be minimal, as the consolidation and valuation principles currently in use are already largely compliant with IFRS rules. The Half-Year Report 2005 will still be prepared pursuant to SWISS GAAP FER.

CHANGES TO THE BOARD OF DIRECTORS
The author of these words will be stepping down as Chairman of the Board of Directors at the General Meeting in April 2005, having reached the statutory retirement age. The current Vice Chairman, Dr David Syz, is the intended successor. The Board of Directors is delighted to propose a chairman-designate with the ideal background for this position in the person of Dr Syz. He brings with him extensive experience in industry and politics, knows the company inside out as a long-standing member of the Board of Directors (from 1987 to 1999 and again since 2004) and is fully accepted. Furthermore, he has a productive working relationship with our Executive Group Management characterized by mutual trust, which is a vital prerequisite for rapid decision-making and targeted management of the HUBER+SUHNER Group.

A WORD OF THANKS
The challenges in the year under review again demanded the full commitment of our employees. I would like to express my warmest thanks for the tremendous personal dedication and the loyalty which they demonstrated time and again, particularly in demanding periods. I would also like to include our customers, suppliers, other business partners, and of course our shareholders in my thanks. Their trust has been key to achieving the turnaround. As I prepare to step down as Chairman and leave the Board, I am left with the agreeable task of acknowledging what a pleasure it has been working with my colleagues, some of them for many years. I am happy that, in Dr Syz, a candidate has been found who will ensure continued success at HUBER+SUHNER. Urs Kaufmann, Chief Executive Officer, also boasts all the qualities and expertise to keep HUBER+SUHNER right on track in future, and can draw on the support of a strong team. With these two figures in charge, I am confident that the handover from one generation to the next has been accomplished very successfully and that all the conditions are in place for continuity of management.

MARC C. CAPPIS
CHAIRMAN OF THE BOARD OF DIRECTORS