Freudenberg & Co. Business Report FY2006

Business Highlights

Financial overview (Consolidated)

in million euros FY2006 FY2005 Rate of change Factors
Sales 5,052.8 4,836.6


Sales by the Group rose year-on-year by 216.2 million euros to 5,052.8 million euros, corresponding to an increase of 4.5 percent. Effects from acquisitions and disinvestments reduced sales by 58.6 million euros, with the largest share of this figure attributable to the sale of some of the operations of the Vibracoustic (Europe) Business Group at the end of 2005. Exchange rate effects also exercised a negative impact during the 2006 financial year. Adjusted for these effects, growth of 6.1 percent was primarily achieved by the Freudenberg Seals and Vibration Control Technology Europe, Freudenberg Chemical Specialties, Vibracoustic (Europe), Freudenberg Household Products, Burgmann Industries, Freuden-berg Politex Nonwovens and NOK-Freudenberg Group China Business
Operating Profit 303.5 278.7 8.9% Profit from operations rose by 8.9 percent to 303.5 million euros. This rise was chiefly attributable to the contribution margins from sales growth. The continued rise in the price of energy and raw materials had a negative impact on profit. Compared with sales growth, functional area costs showed below-average development.
Automotive Components (Sales)
Seals and Vibration Control Technology Europe
1,074.8 1,017.8 5.6% Sales by the Freudenberg Seals and Vibration Control Technology Europe Business Group in the year 2006 rose by 5.6 percent to 1,074.8 million euros (2005: 1,017.8 million euros). 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
Freudenberg-NOK General Partnership (Americas) 780.6 788.1 (1.0%) 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). 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.
NOK-Freudenberg Group China
95.7 56.1 70.6% In the year 2006, 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. 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).
Vibracoustic Europe
451.0 448.7 0.5% 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 investment, growth was 11.4 percent.
Burgmann Industries 359.2 342.7 4.8% Sales in the 2006 financial year rose by 4.8 percent to 359.2 million euros (2005: 342.7 million euros).
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.

- Freudenberg NOK Mechatronics is to buy the Berlin-based production plant for large flexible printed circuits (large FPCs) and a large share of the associated business from Delphi Deutschland GmbH, a wholly-owned subsidiary of Delphi Corporation. The Berlin plant generated sales of 27 million euros in 2005 and employs 160 people. The significance of large FPCs will continue to grow due to the increased use of electrical and electronic technology in cars. (From a press release by the company on Jun. 28)


R&D Expenditure
In 2006, research and development by the Freudenberg Group totaled 204.2 million euros.

R&D Structure
During the year 2006, 2,256 associates were employed in research and development throughout the Group, with the regional focus in Germany, where 1,427 associates are involved in research and development. The Seals and Vibration Control Technology Business Area accounted for the largest share of innovation outlay.

Realignment of the innovation strategy
During the year 2006, the Group commenced with the comprehensive realignment of its innovation strategy, setting up the Freudenberg Innovation Committee (FIC) in which all Chief Technology Officers (CTO) from the Business Groups participate. The main tasks of the FIC are to identify key market and technology trends of relevance to Freudenberg and to initiate the corresponding product and technology developments in the Business Groups.

Investment Activities

-At 271.4 million euros, cash flow from investing activities by the Group was roughly on a par with the previous year (2005: 289.0 million euros). Investing activities focused on the Seals and Vibration Control Technology Business Area (capacity expansion and rationalization measures) and the Nonwovens Business Area (capacity expansion and the technological improvement of existing facilities).

Freudenberg Seals and Vibration Control Technology Europe
- Investment projects in 2006 also included the expansion of special seals production in Cツ。eperka, 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.

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 technol-ogy and environmental technology. Moreover, partner production in Central and Eastern Europe is to be further expanded.

NOK-Freudenberg Group China
- 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.