Freudenberg & Co. Business Report FY2007

Business Highlights

Financial overview
(in millions euro) FY2007 FY2006 Rate of change(%) Factors
Sales 5,341.2 5,052.8


Profit 275.2 219.1 25.6 -
Automotive Components (Sales)
Seals and Vibration Control Technology Europe
1,226.2 1,074.8 14.1 The Freudenberg Seals and Vibration Control Technology Europe Business Group grew sales in 2007 by 14.1 percent to 1,226.2 million euros (2006: 1,074.8 million euros). The full consolidation of Corfina Industriale S.a.s. di Freudenberg & Cosso S.r.l., Pinerolo, Italy (Corfina Industriale), and all Divisions contributed to sales growth.
In its business with the automotive industry, Freudenberg Seals and Vibration Control Technology grew more strongly than the market. Automotive spare parts business also developed well.
Freudenberg-NOK General Partnership (Americas) 1,003.4 986.0 1.8 Sales in 2007 rose by 17.4 million US dollars or 1.8 percent, surpassing the one billion US dollar mark for the first time (2006: 986.0 million US dollars). As a result of the weaker dollar, sales in euros declined by 6.8 percent to 727.6 million euros.
Sales developments must be seen in the context of the difficult American market. Automobile production in the USA fell by 1.5 percent, with the three largest US automakers losing 5.1 percent. There was also a decline in key markets in the general industry sector.
NOK-Freudenberg Group China
122.1 95.7 27.6 In 2007, the joint venture grew sales from 95.7 million euros to 122.1 million euros (an increase of 27.6 percent), with growth markedly higher than the average for the relevant sales markets.
In 2007, NOK-Freudenberg Group China further extended its market leadership in the automotive industry and in several segments of the general industry sector. In addition, there was a rise in profitability due to improved process technology, higher productivity, stringent cost management, greater local procurement and a reduction in quality costs.
Vibracoustic Europe
503.4 451.0 11.6 Vibracoustic reported appreciably stronger-than-market growth, with sales rising by 10.6 percent in the passenger car sector and 17.4 percent in the commercial vehicle sector. On the one hand, sales to established customers were expanded further even though Vibracoustic already holds a high share, and on the other, the underrepresented markets of France and Italy were successfully developed.
Freudenberg Nonwovens 816.2 801.4 1.8 In the 2007 financial year, Freudenberg Nonwovens again had to cope with structural problems on the nonwovens market. Changes in the textile and automotive markets as well as currency effects had a negative impact, particularly for the Interlinings and Tuft Divisions. There was sales growth in interlinings in Asia, particularly China and Vietnam, while there was a slight drop in sales in Europe and the USA.
Tuft business suffered from the weak US automotive sector. Filters business developed well on the sales side, although this business came under high price pressure.

-In January 2008, the Tata Nano, th new car recently unveiled by the Tata Group, is equipped with products of two companies of the Freudenberg Group. Vibracoustic GmbH & Co. KG developed a special engine-suspension concept for the new car. The parts are produced by a joint venture, Sigma-Vibracoustic, in the northern Indian city of Mohali.
The Sigma Freudenberg NOK joint venture is the sole supplier of engine and drive train seals for the Tata Nano.

-In October 2008, Freudenberg-NOK General Partnership announced that it has acquired the assets of Precision Industries Corporation of Germantown, Wisconsin, a developer and manufacturer of specialized custom diaphragms. This acquisition provides Freudenberg-NOK with the desired fabric reinforced diaphragm capabilities in North America, as well as on a global basis with its partners in Europe and Japan. Precision Industries Corporation was established in 1986 as a manufacturer of high quality diaphragms, specializing in fabric-reinforced diaphragms for small engines, fuel systems, irrigation, gaseous fuels, pneumatic controls and medical regulators.

-In December 2007, Mitsubishi Corporation and Freudenberg signed a contract for the sale of the European and US Flexitech companies. It is planned to transfer the brake hose activities of the Flexitech companies to Mitsubishi Corporation and Meiji Flow Systems in January 2008 following approval by the anti-trust authorities. In a partnership which has lasted for more than 15 years, Freudenberg, together with Meiji Flow Systems, has become the market leader in the European brake hose segment. In the 2006 financial year, about 500 Flexitech employees in Europe and the USA recorded sales totaling about 80 million euros. Mitsubishi and Meiji, who are already successful with brake hose activities in Asia, intend to continue the globalization of their activities and to expand business in Europe and the USA. The strategy of Freudenberg is to concentrate on seal and vibration control technology as one of its core competences. This is why the Group decided to dispose of its brake hose activities. (From a press release on Dec. 19)


R&D Expenditure and Structure
-In 2007, the Freudenberg Group expensed a total of 202.9 million euros for research and development, with more than half of this sum accounted for by the Freudenberg Seals and Vibration Control Technology, Vibracoustic (Europe) and Freudenberg Nonwovens Business Groups. The largest number of development projects was implemented in the OEM (Original Equipment Manufacturer) market segment. During the year under review, 1,901 associates were employed in research and development throughout the Group, with the regional focus on Germany, where 1,323 associates were involved in research and development.

Product Development
-In 2007, Freudenberg Seals and Vibration Control Technology Europe launched sealing solutions that can reduce automotive CO2 emissions by up to 3 percent. The company also developed materials and sealing solutions for biodiesel, alternative fuels and the new R744 air conditioning coolant.

-General Motors selected Freudenberg-NOK General Partnership as a prototype development partner for fuel cell seals to be used in the new Equinox. In a first step, it is planned to produce 100 vehicles for the Californian market.

-At Vibracoustic, the characteristics of entire axle systems are mapped using dynamic measurement. Multibody system models facilitate the definition of component specifications and optimization potential analysis.
Vibracoustic’s torsion spring technology ensures a smooth re-start in engines fitted with automatic start/stop systems which cut the engine when traffic is at a standstill in order to reduce CO2 emissions.

Investment Activities

Overseas Investment
-On July 31 2007, Japan Vilene Company, Ltd. announced that it will establish jointly with Freudenberg of Germany a company to process and sell air filters for industrial applications such as automobiles in Thailand. The new company will start operations in January 2008 to supply cabin air filters for automobiles to carmakers in the ASEAN region. Total investment will amount to 272 million yen. The new joint venture, Freudenberg & Vilene Filter Thailand (FVFT), will be established by September in Amata Nakon Industrial Estate, near Bangkok. Capitalized at about 160 million yen, the company will be invested by Japan Vilene and Freudenberg on a fifty-fifty basis.

-In December 2007, the Company presented investment plans for the next four years in Brazil. Operating production facilities for 50 years in the country, the German company has invested about R$ 50 million in the local market in the last four years. For 2007 its performance is expected to grow to R$ 408 million, following a growing curve to reach planned R$ 551 million in 2010. In order to achieve this goal, the company will invest in production capacity in the sites and in increasing the number of product lines. In the Jacarei plant a new production line for nonwovens has been installed with an investment of R$ 8 million. Another major investment of R$ 4.5 million has been to get a state of the art mixing room in the sealing production in Diadema to improve quality as well as productivity. (From a press release on Dec. 11)