The Freudenberg Group

Freudenberg’s activities are broken down into the four Business Areas of Seals and Vibration Control Technology, Nonwovens, Household Products and Specialties and Others.

Seals and Vibration Control Technology
Business Area

The Seals and Vibration Control Technology Business Area comprises the following five Business Groups: Freudenberg Seals and Vibration Control Technology Europe, Freudenberg-NOK General Partnership, NOK-Freudenberg Group China, Vibracoustic (Europe) and Burgmann Industries. In 2006, the largest Business Area in the Freudenberg Group generated total sales of 2,788.0 million euros (2005: 2,692.6 million euros) and employed 20,762 people (2005: 20,717) at year-end.

Freudenberg Seals and Vibration Control Technology Europe

Sales by the Freudenberg Seals and Vibration Control Technology Europe Business Group in the year under review rose by 5.6 percent to 1,074.8 million euros (2005: 1,017.8 million euros). All major Divisions contributed to this marked growth, albeit to a varying degree. There was also a rise in the number of employees in the 2006 financial year, with the headcount increasing from 8,340 to 8,501.

Automotive business, which accounts for roughly half of sales, grew by 3.9 percent despite strong price pressure. The main growth driver was business with system component manufacturers, which increased by 8.3 percent.

Simrit® brand sales to the general industry sector also showed above-average growth of 11.0 percent. A positive trend in virtually all European regions and above-average development of the newly-established sales company in Russia were attributable to both the good economic conditions and numerous new projects.

Automotive spare parts business (Corteco) and business with the chemical and process industry (Freudenberg Process Seals) also developed well.

The redesigned Innovation Center in Weinheim is a key pillar in the further development of the Business Group. The architectural changes completed at the end of 2006 are accompanied by a more systematic, customer-oriented innovation management process. Freudenberg Seals and Vibration Control Technology Europe has defined development trends for its most important customer groupings over the next few years. This concept formed the basis for developments such as sealing solutions which help to lower vehicle fuel consumption and thus reduce CO₂ emissions.

Investment projects last year also included the expansion of special seals production in Čeperka, Czech Republic, and a logistics center in Lorsch, Germany, which functions as a central warehouse for the whole of Germany. The new distribution center brings a noticeable improvement in delivery reliability while simultaneously cutting costs.

A new production facility for O-rings set up in close cooperation with the Japanese partner NOK has been in operation at the site in Oberwihl, Germany, since the first half of 2006. Global orientation of the O-rings Division is to be intensified during the current financial year. The further expansion of global cooperation with NOK and the American Freudenberg NOK General Partnership Business Group ranks among key projects for the future. At the same time, Freudenberg Seals and Vibration Control Technology Europe intends to focus more closely on developing growth markets such as oil and gas, medical technology and environmental technology. Moreover, partner production in Central and Eastern Europe is to be further expanded.

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Freudenberg-NOK General Partnership

Freudenberg-NOK General Partnership, a joint venture between Freudenberg and NOK in which Freudenberg holds a 75 percent share and NOK a 25 percent share, is responsible for the seals and vibration control technology business in the Americas. At 986.0 million US dollars, sales in 2006 were 1.1 percent higher than the previous year (975.7 million US dollars). As a result of the weaker dollar and exchange rate movements, sales in euros declined by 1.0 percent to 780.6 million euros (2005: 788.1 million euros). The headcount declined by 1.6 percent to 6,087 (2005: 6,184).

The moderate sales trend for the year is the consequence of conflicting effects. Business with the automotive industry in 2006 could not repeat the record high of the previous year, and sales declined to 510.6 million US dollars (2005: 525.1 million US dollars), primarily related to the drop in sales by the three largest US automakers during the second half of the year. This could not be entirely offset by increased market shares and stronger business with Japanese automobile manufacturers. Developments in the automotive sector were reflected by slightly lower sales with the Corteco® brand in the aftermarket business.

Growth was chiefly stimulated by the vibration control technology business (Vibracoustic). Exceeding 2005 sales by some 7 percent, this was primarily due to new business and Simrit’s brand business in the general industry segment, where sales rose by as much as 12.2 percent to 156.8 million US dollars. Approximately half of this increase is due to the acquisition of the business activities of Helix Medical and Imperial Rubber which has strengthened the presence of Freudenberg-NOK General Partnership in the medical and oil and gas markets. At the same time, an increase into targeted markets such as aerospace, semiconductor and healthcare/medical generated a rise in overall sales. On the disinvestment side, the joint venture divested a company serving the automotive aftermarket.

Major investments in new production facilities throughout the year strengthened technology, quality and process management performance. Freudenberg-NOK General Partnership once again received numerous awards from renowned customers in 2006. Furthermore, strict cost management, material management and logistics programs generated significant cost savings.

For 2007, Freudenberg-NOK General Partnership plans to exceed the one billion US dollar level in sales for the first time despite difficult market conditions in the automotive industry. The emphasis on growth with the Japanese automakers is to continue, and there is to be an overall improvement in the quality of products. In the general industry segment, Freudenberg-NOK General Partnership envisages further internally-driven, and possibly acquisition-triggered, growth.

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NOK-Freudenberg Group China

The two partners Freudenberg and NOK have combined their sealing technology activities on the Chinese growth market in the NOK-Freudenberg Group China joint venture and each partner holds a 50 percent share in the jointly-owned Business Group. In the year under review, sales by NOK-Freudenberg Group China rose very sharply by 70.6 percent from 56.1 million euros in 2005 to 95.7 million euros. 50 percent of this figure is consolidated in Freudenberg Group sales. The Business Group also reported a significant rise in headcount, which grew by 20.7 percent to 1,418, compared with 1,175 at year-end 2005. Based on the pro-rata shareholding, 709 employees are included in the Freudenberg workforce statistics.

NOK-Freudenberg Group China enjoyed above-average benefits from continued growth in China in both the automotive industry (29 percent) and the general industry sector (20 – 25 percent, depending on market segment). In this context, the growing awareness of quality on the part of Chinese automobile customers stood the company in good stead. NOK-Freudenberg Group China continued with the strong expansion of its leading market position in the automotive industry as well as the general industry sector. The Business Group benefited from integration in the global Freudenberg-NOK alliance and was thus able to set itself apart from local competitors in terms of quality, production technology and innovation. The production of hydraulic seals by Merkel NOK-Freudenberg Co. Ltd. in Taicang, China, was successfully started.

The continued upswing in China is, however, also reflected by rising wages and salaries at all levels. The situation is further compounded by increasing bottlenecks as regards the availability of highlyqualified production and sales personnel and the significant fluctuation rates which are typical of China but higher than in other economic regions.

To continue to enjoy above-average benefits from growth on the Chinese market, NOK-Freudenberg Group China plans further capacity expansion and the installation of new production facilities to further extend the product range on the Chinese market. The Business Group remains optimistic as regards business with the automotive industry and, more particularly, the general industry sector.

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Vibracoustic (Europe)

The Vibracoustic (Europe) Business Group currently includes business with vibration engineering solutions for passenger cars and commercial vehicles in Europe and sections of the Asian market. Vibration technology products for the American market – also sold under the Vibracoustic brand name – are produced and marketed by Freudenberg-NOK General Partnership. Sales by the Vibracoustic (Europe) Business Group increased from 448.7 million euros in 2005 to 451.0 million euros, representing 0.5 percent growth. As air intake systems business, part of the former Chassis/Air Intake Systems Division, including a facility at Bad Salzdetfurth, Germany, was sold to Etimex Technical Components GmbH, Rottenacker, Germany, at the end of 2005, sales figures for 2006 do not adequately reflect actual growth. Adjusted for the effects of this disinvestment, growth was 11.4 percent. The headcount increased during the year from 2,060 to 2,154 at year-end 2006.

Growth by the Vibracoustic (Europe) Business Group in the 2006 financial year was well above the market trend. In the passenger car segment, sales grew by 10.3 percent compared with unit volume growth (Europe) of 2.1 percent; in the commercial vehicles segment, Vibracoustic business grew by 18.2 percent compared with a 6.8 percent increase on the European market. Sales to established customers grew further even though delivery volumes are already high. Developments on the French market, where sales more than doubled year-on-year, are particularly worthy of note. New project start ups also contributed to growth. Several interesting new orders were acquired in 2006. These include the order from an American automaker for a global production platform. Apart from technology and cost leadership, the global network of Vibracoustic (Europe) was a further decisive factor in contract award. Preparations to establish global business divisions were made in 2006 in order to expand this competitive edge further. The concept, known as “Vibracoustic International”, will be implemented to schedule in 2007.

Vibracoustic (Europe) made further important progress on growth markets in 2006. In Russia, the company won an order to develop an engine mount system for a bus maker, while development projects for air spring systems were won in China and South Korea.

Restructuring measures in the Chassis and Power Train Divisions, including the closure of plants in Gotha, Germany, and New York, UK, created room for improving earnings in 2006. Business was transferred to Poland and the Czech Republic. Thanks to internal improvement measures, savings targets were met despite higher material costs. Furthermore, Vibracoustic (Europe) responded to major trends in the automotive industry (diesel engines, fuel consumption, safety) by developing innovative products, thus extending its technology leadership.

For 2007, Vibracoustic (Europe) anticipates moderate growth. Momentum is primarily expected from the global orientation of the three Divisions (“Vibracoustic International”) and the “Value Selling” project, which will leverage pricing potential by providing additional services.

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Burgmann Industries

The Burgmann Industries Business Group primarily manufactures business seals for various sectors of industry as well as packings and static seals for various applications. Sales in the 2006 financial year rose by 4.8 percent to 359.2 million euros (2005: 342.7 million euros). This figure, which is included in Freudenberg consolidated sales, does not, however, adequately reflect the actual – and pleasing and very successful – developments in business. Outside Germany, Burgmann Industries has been active in a sealing technology alliance with the Japanese partner EKK since 2004. Under this alliance, business in the Asia and Asia-Pacific region has been restructured. If sales developments for the entire Eagle Burgmann Industries (EBI) alliance are taken into consideration, then growth is significantly higher. EBI sales increased from 458.1 million euros to 500.6 million euros in 2006, a rise of 9.3 percent. The workforce in the Burgmann Industries Business Group included in the Freudenberg Group statistics declined as a result of the changes in consolidation in the Asia and Asia-Pacific region from 3,233 at year-end 2005 to 3,016.

Overall, the Business Group developed well despite strong price competition and significant cost pressure with regard to raw material and energy prices. Business was driven in particular by the flourishing oil and gas industry, one of the major customer groupings. Important growth regions for the Eagle Burgmann alliance were the entire Asia region, particularly the Middle East, China and India. Burgmann Industries also benefited from the economic upturn in Germany, its domestic market, and reported double-digit growth there.

Several major long-term contracts were concluded with international corporations in 2006, strengthening the market position of the Business Group and expanding this position in many regions. Product harmonization with the partner EKK and a heightened presence in the USA were important milestones. A Russian subsidiary was set up in Zavolzhie near Nizhniy Novgorod during the first half of the year. In June, the remaining shares in the joint venture with EKK (75 percent) in India were purchased. The acquisition of the remaining shares in the Burgmann joint venture (49 percent) in Mumbai, India, has begun, with completion scheduled for 2007. Once the acquisition has been concluded, the Eagle Burgmann Alliance will be the clear market leader on this, one of the strongest-growing markets.

Burgmann Industries also expects momentum to come from a joint research and development project with Fraunhofer Institute for Surface Engineering and Thin Films in Brunswick. Special coatings will not only optimize the surface properties of mechanical seals, but also allow the integration of sensor functions. In a first step, this will involve measuring the temperature of parts. Work on a prototype is already in full swing.

In 2007, the focus will lie on continuing and further expanding the alliance with the partner EKK. Burgmann Industries expects the positive business trend to continue in 2007, not least bolstered by the booming oil and gas industry.

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Nonwovens Business Area

The Nonwovens Business Area comprises the two Business Groups Freudenberg Nonwovens and Freudenberg Politex Nonwovens. In 2006, these two Business Groups generated sales totaling 1,016.9 million euros (2005: 994.8 million euros). At year-end 2006, the Business Area had a workforce of 5,575, compared with 5,540 at the close of the previous financial year.

Freudenberg Nonwovens

Sales by the Business Group remained almost unchanged in 2006, with only a marginal year-on-year decline of 0.2 percent from 803.1 million euros to 801.4 million euros. The headcount also remained stable. At year-end 2006, the workforce at Freudenberg Nonwovens totaled 4,835 compared with the prior-year figure of 4,840. Freudenberg Nonwovens made significant progress in earnings power despite rising raw material and energy costs. This was in part due to a rise in productivity and in part to the positive effects of the "Fit für die Zukunft" ("Fit for the Future") restructuring program designed to safeguard the long-term competitiveness of the German sites. Moreover, the Business Group anticipates enhanced market orientation and further increases in efficiency from the new organizational structure for the German companies completed mid-year.

Freudenberg Nonwovens business is divided into six Divisions. Business developments in the Interlinings Division were characterized by the continuing relocation of the textile industry to Asia and tougher competition between the North American and European textile industry on the one hand and the still strong-growing Asian market on the other. Overall, these effects were largely leveled out. However, the termination of relations with a North American sales partner and closure of a sales company in Germany impacted on sales. The commissioning of a printing plant in India marked an important step in further growth on the Asian market. In the Filters Division, market leadership in automotive interior filters was maintained despite strong competitive pressure, and the volume of OEM orders increased. Overall, sales in this Division rose, in particular in the Europe and Asia regions. The Tuft Division was affected by the downturn in sales to the North American automotive industry, which could not be entirely offset by rises in Europe and Asia. Sales in the Technical Nonwovens Division grew as a result of the takeover of Scimat Limited, Swindon, UK, the British company specializing in surface-treated nonwovens for battery separators, and strong demand for cable sheaths. The Hygiene Division concluded a two-year contract with a major customer. The Evolon Division reported a substantial rise in sales thanks to breakthroughs in various applications - cleaning cloths, technical packaging, acoustics and window treatment.

As in previous years, Freudenberg Nonwovens again made significant investments in new production facilities in 2006. Conversion of a spunbonded line in Kaiserslautern, Germany, commenced and modernization of the wet laid line in Neuenburg, Germany, began. In 2007, the Business Group expects to see positive effects from these investments, a series of product innovations and progress in the global implementation of the "Winning in Nonwovens" concept for the future. Momentum is also anticipated from the newly defined growth markets. New technical solutions and applications as well as a presence in regional growth markets such as China, India, Russia and South/Central America will stimulate further growth.

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Freudenberg Politex Nonwovens

The company headquartered in Novedrate, Italy, specializes in the production of nonwovens for roofing reinforcements, building materials and padding materials for clothes and furniture. In 2006, Freudenberg Politex Nonwovens generated sales of 215.5 million euros (2005: 191.8 million euros), representing a year-on-year rise of 12.4 percent. Freudenberg Politex Nonwovens confirmed its positive growth course of the previous year, primarily thanks to its strong market position in roofing reinforcements, capacity expansion through the construction of a new production plant, and the development of new products for building applications. This trend is reflected by personnel developments, with the number of employees rising from 700 in 2005 to 740 in the year under review.

One key to continued growth is the leadership position in the roofing reinforcements market. Although market developments varied, sales nevertheless grew significantly by 13.5 percent. The most noticeable momentum came from the Middle East and Far East. The North American market showed an exceptional peak in demand in the first half of the year still linked to the effect of reconstruction work after the 2005 hurricanes, but registered a dramatic contraction in the last quarter. Business already began to recover in the first months of 2007. Developments in Western Europe, the largest market for roofing reinforcements, were moderate.

Full exploitation of the new line in Pisticci, Italy, completed the previous year and commissioning of the first production site in Russia (Zavolzhie near Nizhniy Novgorod), combined with improvements in productivity at the facility in Colmar, France, effectively dealt with the increase in demand.

Developments in the market for other construction applications have been gratifying. Marked growth in this sector is due to rising demand for Freudenberg Politex Nonwovens multi-functional building materials. At the same time, the environmental protection regulations issued by the European Union to increase the energy efficiency of buildings are having a positive effect on demand. The market for padding, which is extremely price-driven and competitive, proved much more difficult. A representative office in Shanghai, China, was opened in 2006 as a first step for expanding into new markets.

Work to install a new production line in Macon, USA, was successfully carried out in 2006 and the line was commissioned in early 2007. Freudenberg Politex Nonwovens is committed to further strengthening its position, evolving from a product supplier into a provider of value added solutions by offering customers a high level of technical service and support; this involves expanding the product range and developing innovative service solutions. There will also be a strong focus on enhancing productivity. As a result of the initiatives and measures planned, Freudenberg Politex Nonwovens expects to continue its positive growth course.

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Household Products Business Area

The Household Products Business Area comprises the Household Products Business Group, which manufactures mechanical cleaning equipment and laundry care products for the final user market under the vileda®, O'Cedar® and Wettex® brand names.

Freudenberg Household Products

The Business Group's activities are divided into the Consumer Division (some 85 percent of sales) and the Professional Division. Thanks to noticeable growth in both Divisions, total sales rose by 6.7 percent to 626.9 million euros (2005: 587.6 million euros). Excluding currency and acquisition effects, the increase would have been as high as 7.0 percent. There was also a slight rise in the workforce. At year-end 2006, Freudenberg Household Products employed 2,215 people, 15 more than the previous year.

Business Group growth was bolstered by the positive stable consumer climate in almost all relevant markets and the successful launch of new products. Innovations very well received by the market include the new generation of three-dimensional cloths (Novolon®), the electric broom (e-sweeper) initially marketed in Southern Europe, a special ceramic hob cleaner, a new range of more lightweight laundry care products and regional expansion of the 2in1 broom and mop range successfully launched last year. Product development in general was given a stronger regional focus by setting up technical development centers in Chicago, USA, and Suzhou, China.

In addition, the prices of selected products were lowered, cooperation with strategic retail partners expanded and growth in new regions and countries intensified in order to expand the market position. As a result, Freudenberg Household Products was able to further extend its leading market position in all regions and in most countries. The sharp rise in raw material and energy prices was offset by internal improvement and rationalization measures. Internal restructuring measures included the closure of the plants in Springfield, USA, and Caerphilly, UK, and relocation of production to Chicago, USA, and Alucon s.r.o., Lázne Belohrad, Czech Republic. Furthermore the complexity of the US O'Cedar® brand was significantly reduced by cutting the number of articles from 1,200 to 300.

The regional presence was further expanded. The Business Group's own sales branches were successfully established in Turkey and the Netherlands. A sales joint venture for Professional Division business was set up in Russia and a production joint venture to supply the Middle East region was successfully started in Jordan. The new production and administration building in Suzhou, China, was completed following a twelve-month construction phase. Investment projects included a production line for the innovative three-dimensional nonwoven Novolon® at the facility in Augsburg, Germany, and a new fully-automated production line for the new generation of wet mops in Parets del Vallés, Spain.

Development in laundry care operations has been very positive, and business has doubled. In contrast, the market for what are known as "ready to use systems" (cleaning systems with an integrated container for the cleaning agent and water), continues to decline.

In general, Freudenberg Household Products expects the profitable growth trend to continue during the 2007 financial year. The vileda® brand is to be strengthened further by a significant rise in media investment, particularly in Western Europe. Moreover, the Business Group will continue to focus on a strong innovation program, closer cooperation with strategic retail partners and the further expansion of the laundry care business.

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Specialties and Others Business Area

The Specialties and Others Business Area comprises the Business Groups Freudenberg Chemical Specialities, Freudenberg Building Systems, Freudenberg NOK Mechatronics, Freudenberg IT, Freudenberg New Technologies and Freudenberg Service Support, the latter two primarily operating internally. During the year under review, the companies in this Business Area generated sales totaling 884.8 million euros (2005: 826.7 million euros). At year-end 2006, the workforce totaled 4,974 compared with 4,928 at the end of 2005.

Freudenberg Chemical Specialities

The Business Group comprises Klüber Lubrication, Chem-Trend and OKS. These three grew sales by 10.0 percent to 469.6 million euros (2005: 426.8 million euros). Apart from the excellent position of the companies in their respective markets, the rise was also attributable to the positive trend in many economic regions which was reflected by slight growth on the overall market for lubricants, the first for several years. There was also an increase in the workforce. At year-end 2006, 2,239 people were employed by the Business Group, 84 more than the previous year, representing an increase of 3.9 percent.

The main motor for growth on the lubricants market was rising demand in Central and Eastern Europe and Asia. Western Europe and North America, generally seen as largely saturated markets, also contributed to growth. In contrast, individual regional and industrial submarkets, such as the North American automotive industry, weakened. Freudenberg Chemical Specialties companies remain confronted with a high price level for raw materials. There is little likelihood of any near-term improvement, particularly as regards crude oil which is so important for the manufacture of many products.

The companies in the Freudenberg Chemical Specialities Business Group maintained their market position during the year under review, even expanding this position on key markets. This is attributable to numerous new products and the carefully prepared internationalization of business in major growth regions. Klüber Lubrication thus established its own company in Russia and opened a sales office in Indonesia. Work begun in 2005 to build a production facility in China near Shanghai proceeded to plan. Acquisition of the remaining third-party shares in Chem-Trend Comercial, S.A. de C.V., Mexico City, Mexico, was completed in early 2006. Moreover, Chem-Trend opened a sales office and warehouse in Poland. OKS trained a further eight new distribution partners in Eastern Europe and is showing particularly strong sales growth in this region.

In total, the companies in the Business Group launched almost 200 new products last year. Furthermore, cooperation with other Freudenberg Business Groups pools different competences. The "Lube n' Seal" concept optimizing the choice of seal and specialty lubricant for sealing systems jointly developed with Freudenberg Seals and Vibration Control Technology Europe was successfully established on the market in 2006. There is a similar cooperation project with Burgmann Industries involving a combination of lubricants and mechanical seals.

Freudenberg Chemical Specialities expects to see a continuation of the moderate growth course in 2007, assuming there are no major distortions on international raw material markets. Completion of the plant for Klüber and Chem-Trend products in the Qingpu Industrial Zone near Shanghai, China, is seen as an important milestone in the internationalization strategy.

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Freudenberg Building Systems

The Freudenberg Building Systems Business Group produces rubber floor coverings under the nora® brand as well as shoe components. Sales rose to 158.2 million euros in the 2006 financial year, corresponding to a 3.9 percent increase over the previous year, when sales totaled 152.3 million euros. The workforce fell slightly from 921 to 919.

The Business Group significantly improved profitability thanks to stringent cost management and price positioning adjustments. The floor coverings business, which accounts for over 90 percent of Business Group sales, developed well. In North America in particular, sales in all major market segments were well above average. As a result, there was an 18.9 percent rise in dollar sales in the USA, not least as a result of strong growth in the health care market segment. Double- digit growth was also recorded in the other designated growth markets of the UK, France and China. In Germany, which remains the most important market, the slight recovery in the construction industry stimulated a rise in sales - albeit small - at 1.5 percent. In global competition for equipping rail vehicles, Freudenberg Building Systems retained its position as the market leader. Developments in shoe components business were less positive, with a further drop in sales.

In 2006, the sales organization of the floor covering division underwent fundamental change and was restructured on a regional basis, thus reflecting the growing internationalization of business. noraplan® sigma, a range in 48 colors jointly developed with international designers and architects for the healthcare market segment, illustrates new product development. In the field of recyclable materials management, the large-scale transition from thermal recycling to the material reprocessing of production waste contributed to saving resources as well as cutting costs. The most important ongoing investment project involves a small-batch production facility in Weinheim for the more efficient manufacture of small-batch orders for noraplan. The plant is to be commissioned during the course of 2007.

In 2007, Freudenberg Building Systems will be continuing its growth course, focusing in particular on the designated growth regions. Further improvements in efficiency are expected from the reorganized sales structure. Furthermore, product innovation is to stimulate growth. The Shoe Components Division plans to develop new market segments.

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Freudenberg NOK Mechatronics

The Freudenberg NOK Mechatronics Business Group established as a joint venture with the Japanese partner NOK in 2005 reported an acquisition-driven boost in sales in 2006. The Freudenberg share in sales increased from 2.6 million euros to 14.2 million euros. The headcount attributable to Freudenberg rose significantly from 87 to 146 at year-end 2006. This was chiefly accounted for by the acquisition of the Berlin-based facility of Delphi Deutschland GmbH, Wuppertal, Germany, which produces flexible printed circuits.

The acquisition of Delphi's business in large flexible printed circuits, including the production facility in Berlin, with effect from July 1, 2006, has significantly improved the market position of Freudenberg NOK Mechatronics. As a result of the acquisition, the Business Group now holds an extensive portfolio in large flexible printed circuits and long-standing experience in series products for the automotive sector. This puts the Business Group in a very good starting position to benefit from the rapid rise in electronic applications in the automotive industry. Compared with conventional round cables, flexible circuit boards give automakers greater design freedom, help to reduce weight and costs and simultaneously allow the direct integration of functionalities. Integration of the original Delphi large printed circuit activities in Berlin was successfully completed. SAP installation at the Berlin site proceeded smoothly and now forms the basis for further improvements in supply chain efficiency.

In the Actuator Division, business remained stable with sales slightly below the prior-year level, primarily due to the introduction of new, lower-cost products. New orders expanded the market position in Europe. The division will in future benefit from the relocation of production to Pécel, Hungary. The Pécel plant will also take on flexible printed circuit production tasks.

In 2007, Freudenberg NOK Mechatronics will push ahead with integrating the different business operations and strengthening cooperation among sites. Further significant increases in sales are planned.

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Freudenberg IT

In the 2006 financial year, the Business Group reported growth of 4.5 percent with sales totaling 50.8 million euros (2005: 48.6 million euros). The share of sales to customers who do not belong to the Freudenberg Group has now reached 56.3 percent. The payroll has also increased. At year-end 2006, the headcount at Freudenberg IT was 363, 11 more than the previous year.

In spite of continuing overcapacity in SAP consulting, there were positive developments in the SAP small and medium-sized businesses (SMEs) market, the relevant market for Freudenberg IT, and the market for global MES (Manufacturing Execution System) solutions. Demand among SMEs for single-source solutions relating to different IT fields and regions is growing. With the focus on SAP consulting, outsourcing and the company's in-house Adicom software, Freudenberg IT acquired several well-respected SME customers. Orders doubled compared with the previous year. Numerous new customers were also acquired on the international stage, and the Chinese location proved particularly successful.

The many certifications and awards which set Freudenberg IT apart from the competition are important for market development. Freudenberg IT is an SAP Special Expertise Partner for various new SAP solutions. In the hosting sector, the Business Group with its hosting centers in Germany, China and the USA is one of only eight SAP Global Hosting Partners. At the same time, hosting is already certified to Sarbanes-Oxley. In early 2007, commissioning of a new hosting center in Weinheim tripled hosting center capacity in Germany.

Given the significant rise in orders, Freudenberg IT anticipates a further rise in sales in 2007. The Business Group will expand its partnerships further in 2007 and establish itself in particular as an international IT service provider for SMEs.

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Freudenberg New Technologies

Apart from the lead company Freudenberg New Technologies KG (Freudenberg New Technologies), this Business Group comprises Freudenberg Forschungsdienste KG (Freudenberg Forschungsdienste), Freudenberg FCCT KG (Freudenberg FCCT) and Freudenberg Venture Capital GmbH (Freudenberg Venture Capital), all headquartered in Weinheim, Germany. During the year under review, the Business Group generated sales of 26.1 million euros (2005: 26.6 million euros). The headcount at year-end 2006 rose by 7 to 230.

Activities by the lead company Freudenberg New Technologies focused on setting up the New Business Development Division. The objective is to intensify the innovative strength of Freudenberg by following up new processes, product ideas or technologies which cannot be clearly allocated to individual Business Groups in the Freudenberg Group. The prerequisite, however, is that the projects must have some bearing on Freudenberg activities. The project teams function like start up companies. Four new projects commenced in 2006.

Freudenberg FCCT, established in 2002, already operates on the basis of this model. The company received the Fuel Cell Award in gold for a gas diffusion layer with a new sealing concept. During the year under review, Freudenberg Forschungsdienste introduced various new technologies and grew business with external customers who do not belong to the Freudenberg Group. Freudenberg Venture Capital acquired an interest in Condias GmbH, Itzehoe, Germany, in 2006. The company specializes in thin diamond coatings for surfaces. The technology is used in water treatment systems and for surface treatment applications. In total, some 130 potential participations were reviewed in 2006.

New business development activities are to be systematically continued in 2007.

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Freudenberg Service Support

Freudenberg Service Support generated sales of 111.2 million euros (2005: 122.3 million euros), mainly as an internal technical service provider and industrial park operator. Sales were 9.1 percent down on the previous year. The decline in sales is chiefly attributable to disinvestment effects; excluding these effects, sales declined by 2.1 percent. At year-end 2006, the workforce had fallen by 79 to 623, primarily through the sale of the logistics division.

The entire Division was restructured at the beginning of 2006 and two legally independent subsidiaries, Freudenberg Produktionsservice KG and Freudenberg Gebäudeservice KG, both registered in Weinheim, Germany, were established with a stronger focus on the external market, thus offsetting the sales losses from business with companies related to the Freudenberg Group. As an industrial park operator, business development at Freudenberg Service Support is closely linked to developments at the Weinheim industrial park and the site at Neuenburg, Germany. In 2006, internal business still accounted for over 80 percent of sales. The modernization of the co-generation plant in Weinheim has proved its worth. 13,000 surplus emission certificates were sold in 2006 thanks to the high efficiency of the plant and its extremely environmentally compatible energy generation.

For 2007, Freudenberg Service Support expects a moderate rise in sales, in part due to increased construction activity at the Freudenberg industrial park in Weinheim and growth on the external market.

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