The Freudenberg Group

Financing strategy

The parent company Freudenberg & Co. Kommanditgesellschaft, Weinheim, Germany, (Freudenberg & Co.) is responsible for all the financing activities of the Freudenberg Group and also operates the cash management system for the entire Group. The Group companies obtain the financing they require via cash pools or intercompany loans provided by the parent company or, in some countries, in the form of bank loans guaranteed by the parent company. Freudenberg & Co. does not expose itself to additional financial risks through speculation with derivative financial instruments but uses such instruments only for hedging, and therefore reducing interest rate and currency risks in connection with underlying transactions.

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Cash flow from operating activities

Cash flow from operating activities declined year-on-year by 221.4 million euros to 332.8 million euros. The prior-year figure was characterized by high cash inflow from the reduction in working capital. During the year under review, however, a sales-driven increase in tied-up funds, primarily in receivables, led to a decline in cash flow from operating activities.

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Cash flow from investing activities

At 271.4 million euros, cash flow from investing activities by the Group was roughly on a par with the previous year (2005: 289.0 million euros). Investing activities focused on the Seals and Vibration Control Technology Business Area (capacity expansion and rationalization measures) and the Nonwovens Business Area (capacity expansion and the technological improvement of existing facilities).

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Cash flow from financing activities

Cash flow from financing activities totaled - 49.8 million euros (2005: -124.7 million euros). Cash flow from financing activities was largely characterized by payments to Freudenberg Group Partners and minority shareholders totaling 45.9 million euros. The breakdown is presented on page 77 of the Notes to the Consolidated Financial Statements.

The Freudenberg Group can meet all of its payment obligations at any time.

Further rise in the equity ratio

Assets, equity and liabilities of the Freudenberg Group developed as follows:

The balance sheet total of the Freudenberg Group rose by 106.2 million euros to 4,470.4 million euros, chiefly as a result of the sales-driven rise in trade receivables and the pro-rata results from associated companies.

In spite of the disproportionately high negative effects resulting from the foreign currency translation of the annual financial statements of companies not located in the Eurozone, there was a further improvement in the equity ratio, primarily attributable to undistributed profit, to 46.1 percent.

Net debt increased year-on-year by 7.8 percent to 625.2 million euros.

The assets position was further strengthened as a result of generally satisfactory business development.

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