Annual Press Conference: Freudenberg stays in the fast lane

Weinheim, April 4, 2012. For the internationally active Freudenberg Group, the 2011 financial year was yet another record-breaking year in the family company's long history. Sales ran at €6.007 billion (previous year: €5.481 billion), an increase of €525 million or 9.6 percent on the figure for 2010. Profit from operations (EBIT) amounted to €505 million (previous year: €431 million). Consolidated profit totaled €358 million (previous year: €322 million). The 2011 financial year was therefore Freudenberg's most successful ever for sales and earnings.

"Freudenberg reported above-average, profitable growth both overall and in almost all sectors. This process was underpinned by the measures we introduced during the recent global economic crisis," Dr. Peter Bettermann, Speaker of the Management Board, said at the Annual Press Conference held in Weinheim on Wednesday. "Our commitment in growth regions has paid off. The booming economies in Asia in particular brought above-average growth rates. We were obliged to cope with substantial increases in the price of materials and compensate for weak economic conditions in the Mediterranean countries, but we largely succeeded in doing that."

The improvement in profit from operations, which rose by approximately €75 million to €505 million, was chiefly attributable to the increase in contribution margins as a result of higher sales. Consolidated profit improved by roughly €37 million to €358 million.

Cash flow from operating activities was limited to approximately €382 million, chiefly due to locked up working capital as a result of growth and to higher investment. This corresponds to a reduction of €86 million compared with the previous year.

The equity ratio rose to almost 50 percent (previous year: 47.4 percent).

At year-end 2011, the Group's workforce totaled 37,031 employees, a year-on-year increase of 2,712 or 7.9 percent.

Current developments
Business in the first half of 2012 is expected to be satisfactory in light of the high level of orders in hand in all Business Areas combined with the anticipated stable economic situation in Germany, China and India and the improved macroeconomic conditions in the USA. Developments in the second half of the year will depend to a significant extent on the impact of the sovereign debt crisis and the associated austerity measures in the southern eurozone and the USA on the real economy. There is a clear risk to earnings from price trends and the availability of raw materials essential to Freudenberg's business. "We expect high volatility in raw material prices, which is why we are responding to higher prices with a further increase in productivity, measures to reduce the consumption of materials and targeted purchasing initiatives," Peter Bettermann emphasized.

Outlook
"One of Freudenberg's main targets is to grow profitably and faster than the market," Dr. Mohsen Sohi, Management Board member and Peter Bettermann's successor as Speaker from July 2012, said. "We intend to achieve that through organic growth in established markets and with the help of selective acquisitions in future markets." Acquisitions will continue to concentrate on the market segments of electroplating, medical technology, oil and gas, filtration and vibration control for rail vehicles, wind turbines and agricultural and construction machinery. The company will focus more closely on specific market segments and will harness synergies from cross-Business Group collaboration, particularly in the field of research and development. "In all regions of the world, and particularly in the growth regions, we are continuing our systematic work on an open and transparent organization characterized by cultural diversity. We are fostering local talent, thus establishing a solid base of skilled associates whose new ideas safeguard Freudenberg's innovation leadership in the relevant markets," Mohsen Sohi underscored. Freudenberg will be making significant investments; €1.5 billion will be invested in property, plant and equipment over the next five years - with 30 percent of this figure earmarked for Germany.

Details of business development
The company continued with its conservative finance policy in the 2011 financial year. High liquid reserves, an equity ratio significantly above average, the stable growth in Partners' reserves and comprehensive credit lines are among the main financial strengths of Freudenberg. The measures aimed at rationalization, increased flexibility and capacity adjustments initiated during the financial crisis in 2008 and 2009 continued to have a positive impact in the 2011 financial year.

The 2011 financial year in figures
At €6,006.5 million, sales in 2011 clearly surpassed the already high level of 2010 (€5,481.4 million), representing an increase of 9.6 percent. Adjusted for the effects of acquisitions and disinvestments to the amount of €15.2 million and exchange rate conversion effects, sales were 10.9 percent higher than the previous year. Almost all Business Areas reported an increase.
There was another disproportionately high rise of €74.8 million in profit from operations (EBIT), which increased to €505.4 million. This was chiefly attributable to the increase in contribution margins as a result of higher sales. In contrast, higher material expenses impacted negatively on profit, although a share of these expenses was passed on to markets. Administration expenses and selling expenses rose as a result of strong growth in business. Consolidated profit improved by €36.5 million to €358.2 million.

Net debt declined year-on-year by €42.8 million to €259.0 million despite the higher working capital financing requirement and increased investment volumes, further strengthening the financial situation of the Group. At December 31, 2011, the equity ratio was 49.6 percent (previous year: 47.4 percent). This was almost exclusively due to the positive result. Moody's rating agency confirmed Freudenberg's rating of Baa1 and reaffirmed the outlook as "stable". Freudenberg therefore has a good investment grade rating.

Strategic development of portfolio structure continues
The classic sealing business, previously conducted on a regional basis by the Freudenberg Seals and Vibration Control Europe Business Group and the Freudenberg-NOK General Partnership Business Group in North and South America was brought together in the Freudenberg Sealing Technologies Business Group at the beginning of 2011. This new organization has progressed very well at all levels. Customers are already benefiting to a high degree from the close dialog and the standardization of technologies and processes.

The stand-alone Business Groups Freudenberg Oil & Gas, Helix Medical and Freudenberg Schwab (from January 1, 2012 Freudenberg Schwab Vibration Control) also began operating with effect from the beginning of 2011 and are expanding business further with innovative solutions. All three Business Groups focus on promising, high-margin market segments.

In addition, Freudenberg continued to develop its portfolio. The cylinder head and exhaust system gasket business for OEMs and the vendor-specific aftermarket was sold to ElringKlinger AG, Dettingen/Ems, Germany, effective January 1, 2011. The actuator business of Freudenberg NOK Mechatronics was transferred to the partner company Eagle Industry Co. Limited, Tokyo, Japan, effective June 30, 2011.

Furthermore, Freudenberg and Trelleborg AB signed the contract establishing a 50:50 joint venture between Vibracoustic and the automotive antivibration business of Trelleborg AB on January 31, 2012. The joint venture is conditional upon approval from the relevant authorities, in particular the European anti-trust authorities.

On the acquisition side, Freudenberg Household Products purchased the shares in 13 companies belonging to the Trade & Investment in Asia-Pacific (TIA) Group registered in Hong Kong, China, thus expanding its presence on the Asia-Pacific market. Freudenberg Chemical Specialities acquired further foreign companies in the SurTec Group and Freudenberg Oil & Gas purchased the Offshore Seals company.

Investments
Vibracoustic set up a new plant producing engine mounts and chassis components in Querétaro, Mexico, in order to serve the North American market even more efficiently. Politex Nonwovens built a new spunlaid production line for construction materials in Zavolzhie, Nizhniy Novgorod region, Russia, thereby strengthening its position. The line is scheduled for commissioning in the first half of 2012. Freudenberg Household Products also commenced production in Zavolzhie. Freudenberg Sealing Technologies opened a new plant for special seals in the Berlin Adlershof Science and Technology Park.

Innovations
In 2011, the Freudenberg Group expensed a total of €205.4 million (previous year: €181.3 million) for research and development. More than half of this sum was accounted for by the Freudenberg Sealing Technologies, Vibracoustic and Freudenberg Chemical Specialities Business Groups. During the year under review, 2,187 associates (previous year: 1,960 associates) were employed in research and development. Germany remains the regional focus, with 1,375 associates employed in research and development there.

Group innovations were recognized with several awards in 2011. Freudenberg Sealing Technologies received two German innovation awards, one for outstanding innovation achievements and the other for the climate and environment. These awards were presented for a method to produce the steel rings used in rubber-metal seals using an innovative laser welding process rather than stamping. The smart plaster co-developed by Freudenberg Forschungsdienste KG won two innovation prizes - the Baden-Württemberg "Land of Ideas" Award and the Rhine-Neckar Region innovation prize. Other accolades included the Index 11 award for innovation and sustainability presented to Freudenberg Nonwovens for the Lutraflor® automotive carpet system.

The goal of research and development activities is to significantly boost the share of new-product sales. Currently, some 26 percent of the products manufactured by Freudenberg are less than four years old.

Human resources
On December 31, 2011, the Freudenberg Group employed 37,031 associates (previous year: 34,319), an increase of 2,712 associates or 7.9 percent compared with the previous year. The headcount increased in all regions in light of continued dynamic growth, particularly in North America, where the number of associates rose to 6,983 (previous year: 6,404), the European Union (excluding Germany), where the number of associates increased to 8,641 (previous year: 8,537), and in the Other European countries region, where the number of associates went up to 727 (previous year: 639). In Germany, the headcount rose by 490 associates or 4.5 percent to 11,294. There was only a slight rise in headcount in the South/Central America region to 1,639 (previous year: 1,614), Africa/Australia remained largely unchanged at 456 (previous year: 453). The headcount in the Asia region rose significantly to 7,291 (previous year: 5,868) on the back of strong regional growth.

In 2011, 185 young people began their training at Freudenberg's German companies. In total, 532 people were training at Freudenberg in Germany as at December 31, 2011.

Occupational health and safety
In the year under review, €31.8 million was invested in occupational health and safety, €18.6 million more than the previous year (€13.2 million). Investments in environmental protection amounted to €9.0 million (previous year: €7.5 million). The share of investments in environmental protection and occupational safety in total investments in tangible assets increased to 13.5 percent (previous year: 7.7 percent).

As a consequence of numerous activities and measures as part of the "We all take care" environmental protection and occupational safety initiative, the total number of accidents resulting in more than one day's absence in 2011 declined to 136 (previous year: 142) at a 7.9 percent increase in headcount. The corresponding LDI rate (accidents ≥ 1 day's absence per 1,000 associates) improved to 3.6 (previous year: 4.0). Referred to one million working hours, the rate at Freudenberg therefore improved from 2.3 to 1.9.

Social responsibility
Social responsibility is an integral part of corporate governance. Many Freudenberg companies, sites and associates again engaged in local projects and initiatives providing concrete aid in the spirit of responsible corporate citizenship.