The Freudenberg Group

In the 2006 financial year, the Freudenberg Group reported sales of 5,052.8 million euros (2005: 4,836.6 million euros), topping the five billion euro mark for the first time. Sales rose by 4.5 percent year-on-year. Consolidated profit amounted to 219.1 million euros, 8.4 percent higher than the previous year (202.2 million euros). At December 31, 2006, the Group’s workforce totaled 33,526 employees, 141 higher than at year-end 2005.

Matters of particular significance in the 2006 financial year

Freudenberg expanded its global alliances further in the 2006 financial year. Eagle Burgmann Industries, the alliance between Burgmann Industries, Germany, and Eagle Industry Co., Ltd., Tokyo, Japan, (EKK) launched new projects on the growth markets of the Middle East, China and India and significantly intensified US business. In the field of vibration technology, preparations were made for strengthening cooperation between Vibracoustic (Europe) and Vibracoustic North America, the vibration technology business of Freudenberg-NOK General Partnership, Plymouth, USA. Freudenberg-NOK General Partnership made further progress in strengthening business with the general industry sector. Activities on the target markets of healthcare and energy were bolstered in particular by the acquisition of the business activities of Helix Medical, Inc., Carpinteria, USA, (Helix Medical) and Imperial Rubber and Urethane Company, Nisku, Canada, (Imperial Rubber) and the resulting technical cooperation with Lederer GmbH, Öhringen, Germany. The global orientation of the O-ring Division is being intensified following the successful start up of the new O-ring factory of Freudenberg Seals and Vibration Control Technology Europe in Oberwihl, which was set up in close cooperation with the Japanese partner NOK Corporation, Tokyo, Japan, (NOK). In June, Freudenberg Politex Nonwovens opened the first Freudenberg production facility in Russia, which also houses an Eagle Burgmann service center. The advanced plant for the production of roofing membranes in Nizhniy Novgorod successfully commenced operating. At Freudenberg Nonwovens, the restructuring program began to have an impact, although the full effect of the high investment of previous years has not yet materialized. In the Household Products Business Area, the regional orientation gained further momentum as technical development centers in Chicago, USA, and Suzhou, China, were set up. In Augsburg, Germany, a plant producing the three-dimensional nonwoven Novolon® was commissioned. Freudenberg Chemical Specialities expanded its market position in key markets. A new Klüber Lubrication company was established in Russia and a sales office was opened in Indonesia. Construction work on a new plant producing lubricants and release agents in China progressed to schedule.

DIALOG 2006, the senior management conference in Chicago attended by some 300 delegates from all over the world, focused on the topics of “World Market Leadership” and “Supply Chain Management” in response to what is expected to be a persistent trend in rising energy and raw material prices. Important long-term goals and measures aimed at cutting costs and improving processes were agreed.

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Global economic situation

In 2006, the world economy grew by 3.6 percent, an increase of 0.4 percentage points on prior-year growth. Gross domestic product in the Eurozone rose by 2.7 percent compared with the previous year. The German economy accounted for a substantial share of this growth. In Germany, gross domestic product picked up significantly after several poor years with year-on-year growth totaling 2.7 percent. The young economies in Eastern Europe still showed even stronger growth averaging 5.5 percent. Contrary to expectations during the year, US gross domestic product grew by 3.4 percent. In Canada, the growth rate fell to 2.5 percent, and Mexico reported 4.6 percent growth, an increase of 1.6 percentage points. While the Brazilian economy grew by 3.0 percent, economic momentum in Argentina faltered slightly. Growth here was only 7.5 percent compared with 8.7 percent in the previous year. Japan recorded economic growth of 2.2 percent. Strong growth continued in China (10.7 percent) and India (8.5 percent), and Russia also reported a 6.1 percent rise in gross domestic product.

The situation in the sectors supplied by Freudenberg may be summarized as follows: in Western Europe, new passenger car registrations rose by 0.7 percent to 14.6 million, and Germany headed the growth table with 3.8 percent. In the USA, sales fell year-on-year by 2.6 percent; due to continuing high fuel prices, passenger car sales grew at the expense of light trucks. The Japanese automotive industry faced a 2.2 percent drop in domestic sales, while exports enjoyed double-digit growth. In China, passenger car sales grew by just under 32 percent. With annual sales of 4.1 million vehicles, China now ranks third in the world behind the USA and Japan.

The change in the economic situation in Germany was especially noticeable in the construction industry. Following many years of continued decline, sales in this sector rose by 2.0 percent compared with the previous year. Even the German textile industry, which had also been experiencing considerable pressure for several years, recorded 1.8 percent growth in sales. The mechanical engineering and plant engineering sector in Germany continues in top gear; production grew 7.0 percent year-on-year and German industry has by no means caught up on investment yet. The German chemical industry also benefited from the good economic situation, reporting 3.5 percent production growth. The German electrical and electronics industry enjoyed an exceptionally good year with 13.5 percent growth. In contrast, growth in the retail sector was negligible.

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Products and markets

Components and intermediate products accounted for roughly 90 percent of Freudenberg Group sales. The major customer groupings were the automotive industry, the mechanical and plant engineering industry and the textile and clothing industry. The remaining goods manufactured by Freudenberg were final products such as mechanical household cleaning products and laundry care products distributed under the vileda®, O’Cedar® and Wettex® brands.

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The consolidated group

At year-end 2006, the Freudenberg Group comprised 434 companies in 53 countries. 397 of these companies were included in the consolidation. Based on the full consolidation method, 348 companies, including 109 production companies and 138 sales companies, were included.

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Minority interests and joint ventures

Freudenberg holds a minority interest, either direct or via subsidiaries, in several companies, most of which are consolidated under the equity method. The most important minority shareholdings held by Freudenberg concern the Japanese companies NOK Corporation (22 percent) and Japan Vilene Company Ltd. (22 percent), Tokyo, Japan, (JVC).

The NOK Group manufactures seals and vibration control technology products, flexible printed circuits, lubricants, specialty chemicals and office equipment. At the reporting date for the last financial year, the company employed 25,959 associates at some 40 locations worldwide. In the last financial year, NOK Group sales amounted to 3,269.7 million euros. Compared with the previous financial year, this represents a rise of 8.7 percent (263.0 million euros). Adjusted for the changes in currency parities, sales rose by 10.7 percent.

The JVC Group manufactures nonwovens for the clothing, automotive and electrical industries as well as for medical applications, the consumer goods industry and the agricultural sector. The JVC Group has production facilities in Japan, China, Taiwan, Hong Kong, Korea and the USA. In total, the JVC Group employed 1,792 associates at the reporting date for the last financial year. Sales rose by 11.7 million euros (3.2 percent) year-on-year to 376.3 million euros. Adjusted for exchange rate effects, sales rose by 5.1 percent.

The proven partnership between Freudenberg and these two Japanese companies already spans more than 45 years. During the course of this long-standing cooperation, numerous joint activities have been launched in the USA, Asia and Europe. The most recent examples of successful cooperation are the founding and development of the NOK-Freudenberg Group China and Freudenberg NOK Mechatronics Business Groups.

In India, Freudenberg cooperates with Sigma Corporation India Limited, New Delhi, India, and NOK. Business activities in the year under review developed well.

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Sales top 5 billion euros for the first time

Sales by the Freudenberg Group rose year-on-year by 216.2 million euros to 5,052.8 million euros, corresponding to an increase of 4.5 percent. Effects from acquisitions and disinvestments reduced sales by 58.6 million euros, with the largest share of this figure attributable to the sale of some of the operations of the Vibracoustic (Europe) Business Group at the end of 2005. Exchange rate effects also exercised a negative impact during the 2006 financial year. Adjusted for these effects, growth of 6.1 percent was primarily achieved by the Freudenberg Seals and Vibration Control Technology Europe, Freudenberg Chemical Specialities, Vibracoustic (Europe), Freudenberg Household Products, Burgmann Industries, Freudenberg Politex Nonwovens and NOK-Freudenberg Group China Business Groups.

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Further rise in consolidated profit

Profit from operations rose by 8.9 percent to 303.5 million euros. This rise was chiefly attributable to the contribution margins from sales growth. The continued rise in the price of energy and raw materials had a negative impact on profit. Compared with sales growth, functional area costs showed below-average development.

Consolidated profit rose by 16.9 million euros to 219.1 million euros. The positive contribution from profit from operations and the improved interest result are offset against exchange rate-driven lower income from investments in associated companies and higher income taxes.

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