REPORT ON THE BUSINESS YEAR

The good result is confirmation that the program of restructuring and reorientation, which has now been fully implemented, was correctly timed

2004 will go down as one of the most successful years in HUBER+SUHNER's history to date, with the company enjoying positive sales growth, restored earnings power, and further improvement in its balance sheet. Indeed, the two main objectives of a return to growth and increased profitability were even exceeded. The good result achieved in the year under review is confirmation that the program of restructuring and reorientation, which has now been fully implemented, was the right choice. The broad-based growth performance in the three main markets of communication transportation, and industry is particularly pleasing and worthy of special mention. Furthermore, both business sectors and all geographical regions delivered sales and earnings growth figures that contributed to the positive performance of the HUBER+SUHNER Group.

HIGH PROFITABILITY
At CHF 561 million, net invoiced sales were up 7.4% on the prior-year figure of CHF 522 million; taking portfolio adjustments into account, sales growth was as high as 11.6%. Thanks primarily to good capacity utilization and the program of restructuring measures, which have now begun to take full effect, the gross margin was raised from 32.6% to a remarkable 37.6%. Despite a moderate increase of CHF 5.5 million in operating costs to CHF 170 million, operating profit (EBIT) rose sharply once again from CHF 6.3 million to CHF 41.2 million, pushing up the EBIT margin from 1.2% to 7.3%. This means that the target EBIT margin of 7% set for 2005 was achieved and in fact exceeded in the year under review. Another notable positive development was the fall in interest costs due to the reduction in debt and the low level of interest rates. Net income rose from CHF 6.6 million to CHF 31.5 million, boosting the return on sales from 1.3% to 5.6% – slightly in excess of the previous record return on sales of 5.5% recorded in 2000.

In the consolidated balance sheet, the equity ratio climbed from 62.7% to 68.4%, reflecting a further increase in shareholders' equity from CHF 259.8 million to CHF 285.9 million. Despite strong sales growth – with the resulting investment in working capital – and the resumption of dividend payments, free cash flow amounted to an impressive CHF 50.2 million, compared with CHF 53.6 million in the previous year. The net cash position (cash minus bank debt) improved from CHF 2.9 million to CHF 53.2 million, with bank debt reduced significantly once again in the year under review from CHF 48.7 million to just CHF 18.1 million.

Capital expenditure focused primarily on the automation of the assembly process for the new generation of coaxial connectors, modernization and capacity expansion at the Pfäffikon cable plant, and the continued expansion of the company's IT infrastructure. The ground-breaking ceremony for a new e-beam cross-linking installation, due to come online at the beginning of 2006, took place in mid- December 2004 at the Witzberg plant in Pfäffikon.

2004 was very much a year of two halves. The massive increase in orders at the start of the year saw sales for the first six months of the year clearly exceed expectations. As predicted, however, demand fell back somewhat in the second half of the year, due first and foremost to the fact that our customers in the mobile communications sector had by then fully restocked their inventories.

EPERFORMANCE OF THE MARKET SEGMENTS
In order to reduce and diversify risk, our strategy of spreading operations between our three main markets of communications, transportation, and industry was rigorously maintained. The year under review saw with the remaining activities of the industrial applications record the largest share of sales for the very first time on the back of impressive growth of 14.3%, and together with the transportation market segment they now account for 59.6% of consolidated sales. By contrast, while communications applications also posted growth in absolute terms, their percentage share of sales fell slightly to 40.4%.