Sound strategic development leads to profitable growth

Weinheim, April 21, 2015. Freudenberg, the global family-owned company, continues to be successful. In the 2014 financial year, the technology group reported record sales for the fifth year in succession on the basis of pro-rata consolidation of joint ventures, at €7,039.1 million (previous year: €6,662.5 million), representing growth of €416.6 million or 6.3 percent over the previous year. Adjusted for the effects of acquisitions and disinvestments to the amount of €131.0 million and exchange rate effects, sales were 5.6 percent or €368.0 million higher than the previous year. Sales rose in all Business Groups. Consolidated profit ran at €478.3 million (previous year: €401.5 million), mainly as a result of market success and innovative products. As at December 31, 2014, the Freudenberg Group employed 40,456 people (previous year: 39,897 people).

"Thanks to the enormous commitment and excellent performance of our more than 40,000 employees worldwide, Freudenberg achieved profitable and sustainable growth," said Dr. Mohsen Sohi, CEO of the Freudenberg Group, at the annual press conference held in Weinheim on Tuesday. "We also progressed well with the strategic evolution of our company, made increases in productivity, strengthened our innovation capabilities, increased the transparency of our organization, and further expanded our world-wide presence and our broadly-diversified product portfolio," Sohi emphasized. The business figures are based on pro-rata consolidation (including the activities of the 50:50 joint ventures), which Freudenberg continues to use for the management of its operating activities.

Under IFRS financial reporting standards, 50:50 joint ventures are consolidated by the equity method. This means sales and employee figures are not taken into consideration. According to this method, sales in 2014 amounted to €5,982.3 million (previous year: €5,646.1 million), €336.2 million higher than the previous year. 

Profit from operations (EBIT) amounted to €563.4 million (previous year €457.3 million). Consolidated profit totaled €477.8 million (previous year: €398.8 million), based on higher sales on the one hand and improved capacity utilization and productivity enhancement measures on the other hand. 

Cash flow from operating activities rose by €101.9 million to €617.8 million (previous year: €515.9 million). "We were able to further increase the investment rate from 4.1 to 4.5 percent in 2014," said Dr. Ralf Krieger, CFO and Member of the Board of Management. Investments in tangible assets in the 2014 financial year amounted to €271.6 million (previous year: €229.3 million). Cash and cash equivalents at year-end amounted to €917.7 million (previous year: €672.9 million). 

With an equity ratio of 48.2 percent (previous year: 47.3 percent), the Freudenberg Group remains in a very good, comfortable equity situation. The financial basis of the Group was again strengthened.  

In its rating published in May 2014, the rating agency Moody's rated the creditworthiness of Freudenberg SE as Baa1 and confirmed the outlook as "stable". This gives the Freudenberg Group very good creditworthiness at investment grade level. 

All in all, the Freudenberg Group workforce at year-end on the basis of the equity method totaled 34,030 employees (previous year: 33,245 mployees).

 

Leadership changes
There were leadership changes at Freudenberg during the year under review: Dr. Wolfram Freudenberg handed over the reins as Chairman of the Supervisory Board to Martin Wentzler, thus safeguarding continuity and responsible cooperation between the Supervisory Board and the Board of Management.

Dr. Wolfram Freudenberg stepped down from the Supervisory Board for age reasons.

Dr. Tilman Krauch joined the Board of Management in October 2014. He brings with him two decades of extensive experience working for an internationally successful company. Christoph Mosmann requested the Supervisory Board to release him from his responsibilities as a member of the Board of Management. He left the company at the end of the year.

Under the "Strategic Guide" governance concept introduced in the year under review, the Board of Management is focusing more strongly on developing the strategy, major investments and strategic guidelines. This has led to greater transparency and faster decision-making. The Business Groups remain fully responsible for their business operations and for meeting targets. 

The Board of Management is supported by a new body called the Executive Council. The Executive Council includes the Board of Management and four additional members. These four members of the council, Dr. Klaus Peter Meier (Freudenberg Home and Cleaning Solutions), Claus Möhlenkamp (Freudenberg Sealing Technolo­gies), Bruce R. Olson (Freudenberg Performance Materials) and Hanno D. Wentzler (Freudenberg Chemical Specialities) lend greater weight to the perspectives of the Business Groups with regard to overarching issues.

 

Further strategic development
2014 was a successful year for Freudenberg in very many respects over and above financial performance. The Group launched an ambitious program of strategic projects and realigned its organizational structure to suit the future demands of the market.

The Business Groups implemented the approved organizational changes and several projects stemming from these changes: 

Freudenberg Schwab Vibration Control and Dichtomatik as well as the NOK-Freudenberg Group China joint venture began operating under the roof of Freudenberg Sealing Technologies at the beginning of the year under review. Their combined strengths can cover market segments more efficiently and they can bundle administrative tasks. 

Freudenberg Performance Materials began operating in January 2015. Combining Freudenberg Nonwovens and Freudenberg Politex Nonwovens brings many advantages. "The extended material expertise, the global positioning and leveraging economies of scale are just a few of the benefits of this new united path," Sohi stated. 

The Freudenberg Real Estate Management Division was repositioned as a new Corporate Function called Freudenberg Real Estate responsible for managing the Freudenberg Group's real estate worldwide. 

Achieving economies of scale is also the goal of Freudenberg Business Services KG, Weinheim, Germany, a new company which began operating in the year under review. The first projects indicate that the bundled procurement of non-production-related goods brings significant benefits for the relevant Business Groups and the Group as a whole.

These activities will be successively expanding over the coming years to leverage greater benefits from the size of the Group. 

As a result of the organizational realignment in the year under review, Freudenberg has become more transparent, the decision-making processes are faster and better, and cooperation among the Business Groups is stronger.

 

Portfolio
Freudenberg continued to expand its portfolio.
As regards the established business areas, Freudenberg Home and Cleaning Solutions acquired the Marigold household gloves business from Comasec SAS, Gennevilliers, France, a company of the Dutch Ansell Group, in January 2014.

The acquisition brought Freudenberg the global trademark rights for the Marigold brand as well as consumer business in the UK, Ireland, Italy, the Netherlands, Hong Kong and Japan. 

Freudenberg Sealing Technologies acquired the US company Tobul Accumulator Incorporated, Bamberg, USA, in July 2014. This acquisition strengthens established accumulator business in various markets such as energy/oil & gas, mining and fluid technology in North and South America. 

In August, Freudenberg Nonwovens acquired the companies which operate the Hänsel brand interlinings business from Hänsel Textil GmbH, Iserlohn, Germany. This transaction brings Freudenberg the know-how and innovative technology it needs to expand its offering in the knit products segment in future. 

As regards the strategic growth markets, Freudenberg Filtration Technologies acquired the industrial activated carbon corrosion protection business of the American company MeadWestvaco Corporation. With this acquisition, Freudenberg can offer its global customers additional future-oriented filtration solutions for pollution-free air. 

Furthermore, Freudenberg Performance Materials acquired Polymer Health Technology Limited, Ebbw Vale, UK, a leading specialist of polyurethane foams for advanced wound care in January 2015, thus further expanding activities in the medical technology sector.

 

Innovation
"The most important foundation of our corporate success is innovation," Sohi emphasized. Consequently, the former Freudenberg New Technologies Business Group has been repositioned as a Corporate Function, and is thus established as an overarching innovation driver. In addition to this organizational realignment, Freudenberg invested more than ever before in innovation during the year under review. Research and development expenditure, with the joint ventures consolidated on a pro-rata basis, rose from €181.3 million by about 50 percent to €270.3 million between 2010 and 2014. The aim of all activities is to increase the share of sales accounted for by new products still further. On the basis of the pro-rata consolidation of the joint ventures, the share of products introduced in the past four years was 28.2 percent (previous year: 27.5 percent).

The internal Freudenberg Innovation Award presented for the first time in 2014 highlights the great importance of innovation for the Group.

During the year under review, an average of 2,582 employees (previous year: 2,484) were employed in research and development throughout the Freudenberg Group based on the pro-rata consolidation of the joint ventures. Once again, the regional focus was in Germany, where 1,542 people were employed. 

 

Key projects
Apart from the organizational changes and the portfolio expansion, Freudenberg also worked on other key projects in 2014.

Excellent talent management is to help the company meet its ambitious targets with the right people. Freudenberg successfully launched two flagship programs for leadership development. The Strategic Leadership Program and Business Leadership Program not only encourage personal leadership competence, but also create a common understanding of how to implement central processes such as strategic and operational planning. 

In the year under review, Freudenberg realigned its Group-wide risk management process and made it considerably more efficient. The Group compliance architecture was also improved in order to minimize risks. 

Work on redesigning the Freudenberg global brand continued and a new brand architecture was defined during the year under review. This repositioning will be presented at DIALOG, the global senior management meeting to be held in Detroit, USA, in July 2015.

 

Investments
In total, the Group invested €369.8 million, including €271.6 million (previous year: €229.3 million) in production plants, tangible assets, buildings and intangible assets, with the joint ventures consolidated by the equity method. Examples included the development of the production location of Freudenberg Chemical Specialities in Valinhos, Brazil, and the new research and development center of Freudenberg Chemical Specialities in Qingpu, China.  In addition, Freudenberg Oil & Gas Technologies built a new site in Port Talbot, United Kingdom.

 

Human resources
With pro-rata consolidation of the joint ventures, the Freudenberg Group employed 40,456 associates as at December 31, 2014 (previous year: 39,897 associates).

The headcount rose to 10,536 (previous year: 10,382) in Germany, to 10,597 (previous year: 10,186) in Europe (without Germany), and to 8,343 (previous year: 8,042) in North America. In Asia, the headcount fell to 8,775 (previous year: 8,989) as a result of a change in the measurement method. In South America, the headcount was 1,773 (previous year: 1,870). 

In 2014, 151 young people began their training at Freudenberg's German companies. In total, 662 people were training at Freudenberg in Germany as at December 31, 2014.

 

Occupational health and safety
As a values-oriented company, Freudenberg is firmly committed to occupational health, safety, environmental protection and social responsibility. On the basis of the pro rata consolidation of the joint ventures, the LDI rate (number of accidents with a lost working time of one day or more per 1,000 employees) in 2014 was 2.7, representing a further improvement on the previous year (3.3). In terms of the standard for manufacturing companies, the Group therefore achieves first-class occupational safety.

 

Social responsibility
Social responsibility is an integral part of corporate governance. Many Freudenberg companies, sites and associates again engaged in local projects and initiatives to provide specific assistance in the spirit of responsible corporate citizenship – focusing above all on environmental protection and the education of children and young people. The spectrum ranges from small actions in the direct neighborhood to complex projects.

 

Current developments and outlook
The Freudenberg Group made a good start to 2015, although global economic conditions in Russia, South America and Greece are challenging. While the strong US dollar has a positive impact on sales, it also means that raw materials denominated in US dollars become more expensive. 

In total, Freudenberg intends to embark on investment projects with a value of €370 million in 2015, based on the pro-rata consolidation of joint ventures. Of this amount, about €130 million are to be invested in tangible assets in Germany, including €36 million in Weinheim. One of the major projects is a new production and logistics center at Maisach, Bavaria, with a value of about €44 million. Projects planned for Weinheim include a new training center. 

Overall, Freudenberg is cautiously optimistic about the global macroeconomic environment for the 2015 financial year.

Economic conditions can change very rapidly. Freudenberg expects that the difficult economic situation in South America, Russia and southern Europe will not change significantly in the coming years and that the oil and gas industry will face considerable challenges. The Group therefore expects moderate growth in sales between 2 and 4 percent in the 2015 financial year. All Business Groups are likely to contribute to this performance.

The Freudenberg Group intends to further improve its excellence in the current financial year.