Freudenberg continues its successful course

Weinheim. Freudenberg, the internationally active family company, grew sales for the third year in a row in the 2012 financial year, recording yet another all-time high in the history of the company spanning more than 160 years. At year-end 2012, sales ran at €6.322 billion (previous year: €5.992 billion). This represents a year-on-year increase of €330 million or 5.5 percent. Profit from operations (EBIT) amounted to €538 million (previous year: €517 million). Consolidated profit ran at €433 million (previous year: €370 million).

The consolidated financial statements were drawn up at Freudenberg SE level. In May 2012, Freudenberg Societas Europaea (Freudenberg SE) with responsibility for managing business operations was set up under the umbrella of the strategic management parent company Freudenberg & Co. Kommanditgesellschaft. There have been slight changes to the consolidated group. Freudenberg SE brings together all operating business with the exception of Freudenberg & Co. Kommanditgesellschaft and its Freudenberg Service Support and Freudenberg Insurance Divisions. The sales and headcount of these companies are no longer included in these financial statements. Prior-year figures for the consolidated group used for comparative purposes have been adjusted accordingly. However, a direct comparison with figures published for the previous year is only possible to a certain extent, because prior-year data refer to the financial statements of Freudenberg & Co. Kommanditgesellschaft.

“Freudenberg successfully held its ground in a particularly challenging market environment and achieved strong and profitable growth in many areas. Our broadly diversified product portfolio and our global presence are the foundation for our success,” Dr. Mohsen Sohi, Speaker of the Board of Management of the Freudenberg Group, said at the Annual Press Conference in Weinheim on Wednesday. “Freudenberg was able to grow sales further thanks to innovative products, a high degree of customer orientation and flexibility as well as structured and sustainable expansion in growth markets.” Although the financial and debt crisis impacted business in markets in Southern Europe, the decline was offset by growth in the BRIC countries and in North America.

Profit from operations (EBIT) rose by €21.3 million year-on-year to €538.0 million. Consolidated profit improved by €62.9 million to €432.7 million. This includes a special effect as a result of setting up the TrelleborgVibracoustic joint venture.

Apart from the higher profit, active working capital management contributed to an improvement in cash flow from operating activities, which increased year-on-year by €152 million to €532.2 million. Investments rose by some €86 million to €348.1 million (previous year: €262.1 million). The equity ratio increased to 46.5 percent (previous year: 45.0 percent).

At year-end, the Freudenberg Group workforce totaled 37,453 employees (previous year: 36,529), an increase of 2.5 percent on the previous year. This is mainly attributable to increases as a result of acquisitions and to the proportional allocation of associates under the 50:50 TrelleborgVibracoustic joint venture.

 

Current developments
The market environment for the Freudenberg Group remains challenging in 2013. European countries in particular continue to be severely affected by the financial and debt crisis. The company expects to see the situation in the key sales markets of Italy and Spain deteriorate. In contrast, the BRIC countries will drive the global economy.
Business development in the first half of 2013 will be satisfactory as a result of the good order situation in almost all Business Areas, combined with the anticipated generally stable economic trend. The company expects to see noticeable growth momentum in the second half of the year, particularly in the mechanical engineering sector. “We anticipate strong growth in China, an important sales market for Freudenberg, with India and Brazil picking up considerable speed and the USA generating stable growth,” Mohsen Sohi underscored. The company expects to see minimal growth in the eurozone. Freudenberg remains cautiously optimistic.

Risks relating to the company’s performance in 2013 arise from the high volatility of raw material prices and the availability of raw materials as well as lower contribution margins as a result of changes in the product mix. The Freudenberg Group is responding to this with a further increase in productivity, the use of substitute raw materials, and targeted purchasing initiatives.

 

Outlook
“Our objective is further profitable and sustainable growth,” Dr. Mohsen Sohi emphasized. “We will achieve that under our own steam in established areas of business and through selective acquisitions in growth markets.” Five strategic growth areas have investment priority: Chemical surface treatment, medical technology, oil and gas, industrial filtration, and vibration control technology for high-growth industry segments and rail vehicles. “The strategy is in line with our business principle to occupy niches where we can either become, or already are, a market leader,” Mohsen Sohi continued. The company intends to step up the pace of business expansion in world regions and further intensify cooperation in the various regions and across Business Group boundaries. That holds particularly true for human resources and innovation.
“Anyone who sets themselves ambitious targets needs highly-motivated, well-trained and team-oriented employees,” Mohsen Sohi commented. “We already rolled out one important initiative in 2012 in the shape of the global talent management process that spans all the Business Groups. We foster local talent in all regions, building up a talent pool of qualified employees who safeguard Freudenberg’s innovation leadership in their respective markets.”
Freudenberg will continue to invest at a high level – investments totaling €300 million are planned for 2013, with 30 percent of this sum earmarked for Germany.

 

Details of business development
The company continued with its conservative finance policy in the 2012 financial year. “Good liquidity, an equity ratio significantly above average, steadily increasing Partners’ reserves, and comprehensive credit lines rank among the main financial strengths of Freudenberg,” Board of Management Member Dr. Ralf Krieger underlined.

The 2012 financial year in figures
At €6.322 billion, sales clearly surpassed the already high level of 2011 (€5.992 billion), representing an increase of 5.5 percent. Adjusted for the effects of acquisitions and disinvestments to the amount of €48.0 million and exchange rate conversion effects, sales were 2.2 percent higher than the previous year. Sales increased in almost all Business Areas. Profit from operations (EBIT) rose by €21.3 million to €538.0 million. This increase is attributable to one-time other income in connection with the contribution of the Vibracoustic Business Group to the joint venture with Trelleborg.

Selling costs and development costs rose in line with the growth path. The rise in administration expense is attributable to additional structural costs for further global expansion. Consolidated profit improved by €62.9 million to €432.7 million.

“At €620.8 million, net debt remained at the prior-year level (€617.4 million) even though investment was high. As a result, the financial basis was further strengthened,” Ralf Krieger commented. At December 31, 2012, the equity ratio was 46.5 percent (previous year: 45.0 percent). This was chiefly attributable to the positive result.
The rating agency Moody’s reaffirmed Freudenberg’s rating as Baa1 and confirmed the outlook as “stable”. This gives Freudenberg a good investment grade rating.

 

Strategic development of portfolio structure continues
The Freudenberg Group further developed business in strategic growth markets during the year under review. The founding of Freudenberg Schwab Vibration Control came into effect on January 1, 2012.
The Business Group was formed from Freudenberg Schwab and the Simrit® brand vibration control business of Freudenberg Sealing Technologies. It brings together the vibration control expertise of the Freudenberg Group in the future markets of rail vehicles, wind energy, agricultural and construction machinery, and drivetrain engineering.
In addition, Freudenberg concluded acquisitions to strengthen the strategic growth areas of medical technology and oil and gas. Helix Medical acquired MedVenture Technology Corporation, Jeffersonville, USA, a leading designer and manufacturer of medical technology solutions for minimally invasive surgical devices with facilities in Jeffersonville and Minnetonka, USA. Helix Medical acquired 50 percent of the shares of Cambus Teoranta, Spiddal, Ireland effective January 1, 2013. The company manufactures high-quality precision components for medical instruments.

Freudenberg Oil & Gas acquired the Vector Technology Group, Lysaker, Norway, effective early 2013. “We have made significant progress in expanding our business in the oil and gas industry. Vector is a major global supplier of high integrity sealing solutions for the upstream segment of the oil and gas market. Furthermore, we also acquired Scott-Matrix Ltd., Newcastle upon Tyne, United Kingdom, a manufacturer of elastomeric sealing solutions for the oil and gas industry,” Board of Management member Christoph Mosmann said. In addition, EagleBurgmann purchased the business of SealPots Inc., Romeo, USA, a manufacturer of supply systems for the oil and gas industry.

In January 2013, Klüber Lubrication, a business unit belonging to Freudenberg Chemical Specialities, acquired the PFPE grease business from Solvay Specialty Polymers Italy S.P.A., Bollate, Italy.

Freudenberg Filtration Technologies acquired part of Pyramid Filters Private Limited, Pune, India, in early 2012 as well as Aquabio Limited, Hallow, United Kingdom, effective March 1, 2013. Aquabio Limited is a leading specialist in turnkey membrane filtration systems for water and wastewater recycling.

On the disinvestment side, Freudenberg Sealing Technologies disposed of its business in precision-molded parts for brake systems to ContiTech Vibration Control GmbH, Hanover, Germany, effective mid-2012. Production in Andrézieux, France, as well as the molded brake parts business at Oberwihl, Germany, and Querétaro, Mexico, were also transferred to ContiTech Vibration Control GmbH.

Freudenberg further expanded its position in established areas of business in 2012. TrelleborgVibracoustic began operating on July 2, 2012. The 50:50 joint venture between Vibracoustic and the automotive antivibration business of Trelleborg AB, Trelleborg, Sweden, develops and produces vibration control solutions for all carmakers and all vehicle segments in all major automotive regions. Furthermore, Freudenberg Sealing Technologies acquired 50 percent of the shares in Schneegans GmbH, Emmerich am Rhein, Germany, and
Schneegans-Silicon Ges.m.b.H, Losenstein, Austria. The acquisition gives Freudenberg access to know-how on the manufacture of high-quality thermoplastic products.

 

Investments
In order to serve the medical technology market even more efficiently, Helix Medical commissioned a new production facility in San José, Costa Rica, which manufactures silicone tubing and silicone and thermoplastic molded components.

Freudenberg Filtration Technologies and Japan Vilene Company built a new production facility in Chengdu, China which began manufacturing engine intake air filters and cabin air filters in early 2013. NOK-Freudenberg Group China moved into a new factory manufacturing Simmerrings, O-rings, bellows and sheet gaskets in Wuxi, China. Freudenberg Politex Nonwovens invested €20 million on adding a new spunlaid production line at its facility in Nizhniy Novgorod, Russia. As a result, the Business Group can offer the entire range of staple fiber and spunlaid roofing membranes on the growing Russian market. Furthermore, EagleBurgmann founded a sales company plus service center in Colombia. The Business Group thus complies with the requirements of the state-owned oil company Ecopetrol S.A., Bogotá, Colombia, and can tender for future projects as a state authorized supplier. In Germany, Freudenberg Sealing Technologies invested three million euros in a new mixing plant for fluorinated rubber formulations at its facility in Hamburg.

 

Innovations
In 2012, the Freudenberg Group expensed a total of €217.2 million
(previous year: €205.4 million) for research and development, with more than half of this sum accounted for by the Freudenberg Sealing Technologies, Freudenberg Chemical Specialities and EagleBurgmann Business Groups. During the year under review, 2,244 associates (previous year: 2,187) were employed in research and development, with the regional focus remaining in Germany, where 1,371 associates were employed (previous year: 1,375).

In the 2012 financial year, the activities of the Business Group research and development departments were complemented by various strategic elements with a view to significantly boosting the share of new product sales. At present, some 27 percent (previous year: 26 percent) of products are less than four years old. The Idea Pool, an initiative for new business ideas, was established at international level. Projects in the defined strategic search fields were launched and headway was made with new products generated by this process, such as scaffolene (a wound dressing with integrated enzymes that accelerates the healing process) and Purtex® (a textile impregnation that – unlike fluorocarbon impregnations – is entirely free from detrimental effects both on human health and on the environment).

In addition to the Idea Pool, Freudenberg launched the “Idea Trophy”, an idea competition open to all. The competition is intended for new technology providers, research institutes and start-ups inviting them to generate ideas in seven search fields.

The new function of Chief Technology Officer (CTO) which was introduced in January 2013 aims to further reinforce Freudenberg’s innovative strength.

 

Human resources
On December 31, 2012, the Freudenberg Group employed 37,453 associates (previous year: 36,529), an increase of 924 or 2.5 percent on the prior year. Both the overall increase and the decreases in headcount in Europe and Germany are mainly attributable to changes as a result of acquisitions and to the proportional allocation of associates under the 50:50 TrelleborgVibracoustic joint venture.
The number of associates rose in particular in North America to 7,739
(previous year: 6,983), in Asia to 7,848 (previous year: 7,291), in South/Central America to 1,859 (previous year: 1,639). The headcount in Africa/Australia remained largely unchanged at 457 (previous year: 456). In the European Union (excluding Germany), the number of employees declined to 8,311 (previous year: 8,641), and in Germany, the number of associates fell by 365 10,427 (previous year: 10,792).

In 2012, 181 young people began their training at Freudenberg’s German companies. In total, 522 people were training at Freudenberg in Germany at year-end.

 

Occupational safety
As a result of numerous activities and measures under the “We all take care” environmental protection and occupational safety initiative, the total number of accidents resulting in more than one day’s absence decreased to 108
(previous year: 128). The corresponding LDI rate (accidents > 1 day’s absence per 1,000 associates) improved to 3.2 (previous year: 3.5). Referred to one million working hours, the rate therefore improved to 1.7 (previous year: 1.8).

 

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