The Freudenberg Group

In the 2006 financial year, the economic upswing in Europe, particularly Germany, and in South America progressed. The strong growth trend in South East Asia and India continued. In contrast, there were growing signs of slackening economic momentum in the USA with a weaker US dollar. We particularly noticed the downturn in business by American automakers, since they are key customers, both directly and indirectly, for our seals and vibration control technology business and our spunbonded nonwovens business in the USA. Overall, however, we were operating in a pretty favorable economic environment.

We were able to harness these favorable conditions for our automotive business in both Europe and the Far East and, above all, in the global general industry sector to expand or strengthen our market position. Implementation of our strategy placing a systematic focus on specific market and customer segments, combined with our greater innovative strength, are proving increasingly successful in terms of both sales and earnings growth.

2006 was a generally satisfactory year for the Freudenberg Group. Sales rose by some 5 percent year-on-year despite adverse exchange rate developments and the effect of disinvestments, and topped the 5 billion euro mark for the first time. The rise in profit, which increased year-on-year by more than 8 percent, was higher than sales growth. The equity ratio again increased, and now runs at 46 percent. Under its annual review, Moody's reaffirmed its A 3 rating and upgraded the outlook to stable. It is very gratifying to note the further improvement in the accident rate per 1,000 employees, which declined by another 18 percent and has now fallen to 4.3.

For the current fiscal year, Freudenberg plans to continue with above average growth. This targeted accelerated growth will require extensive funds which we will generate from good operating results, further improved working capital management and targeted disinvestments.

The positive development of the Freudenberg Group in the year under review would not have been possible without the dedication and competence of our workforce all over the world. We would therefore like to express our thanks to all employees for their performance. We are proud to close the 2006 financial year with a global workforce of 33,526, the highest ever in the company's 158-year history.

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