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5. Freudenberg & Co. KG Business Report FY ended Dec. 2014

Freudenberg & Co. KG Business Report FY ended Dec. 2014

Factors
1) Net Sales
-The Company's sales for FY ended Dec. 2014 increased by 6.0% year-on-year. Not only all business areas, but also the well-integrated acquisitions contributed to this increase.

2) Profit before income taxes
-Profit before income taxes for FY ended Dec. 2014 increased by 26.7% year-on-year. This is attributable on the one hand to higher sales and the slight decrease in raw material procurement prices, and on the other to improved capacity utilization and measures to increase productivity. Administration expenses declined as a result of process and system optimization.

Additional Share

-Japan Vilene Co., Ltd. has held a board meeting and decided to raise JPY 1.73 billion through a third-party allocation of newly issued 3 million shares. Out of the newly issued 3 million shares, the company plans to allocate 2 million shares to Toray Industries, Inc. and 1 million shares to Freudenberg SE of Germany at the price of JPY 576 per share, respectively. The due date for payment is August 25, 2014. The fund will be used for renovating the Shiga plant that has been operating for more than 50 years in Moriyama, Shiga Prefecture. Japan Vilene will upgrade its production facilities and equipment at the plant for producing automotive ceiling surface materials whose demand is growing. The company will also use the funds to cover expenditures on land acquisition and construction of a new plant in either northwestern area of Tokyo or southwestern area of Saitama. Japan Vilene's subsidiary, Oshitari Laboratory, Inc., is currently operating at two rented plants in Tokyo. Japan Vilene will integrate production at the two rented plants to the new plant. Oshitari Laboratory became Japan Vilene's subsidiary in August 2013. (From an article in the Nikkan Jidosha Shimbun on August 13, 2014)

Restructuring

-Effective January 1, 2014, Freudenberg NOK Mechatronics was renamed as enmech.
-Effective January 1, 2014, NOK-Freudenberg Group China was integrated into the Freudenberg Sealing Technologies Business Group.
-Effective January 1, 2015, Freudenberg Performance Materials began operation combining Freudenberg Nonwovens and Freudenberg Politex Nonwovens.

Contracts

-Major contracts for FY ended Dec. 2014

Outlook for FY ending Dec. 2015

-Sales growth is expected to be 2-4% over previous fiscal year, while operating result at the previous fiscal year level.

R&D Structure

-As of December 31, 2014, the Company has 2,025 employees working in research and development across all of its locations, including 1,153 employees in Germany.

R&D Facilities

-The Corporate Innovation function, in which the Freudenberg New Technologies Business Group was integrated in 2014, is responsible for innovation strategy, innovation marketing, public funding and collaborations/networks.


-The Freudenberg Group in China reached a milestone in the site expansion project for speciality lubricants and high-performance release agents in Qingpu, close to Shanghai. A new research and development center, as well as administration and training facilities, have been commissioned by Kluber Lubrication and Chem-Trend. Both companies are Business Units of Freudenberg Chemical Specialities. Over the course of three years it is planned to invest more than RMB 150 million (approximately USD 24.2 million) into the entire expansion project for the 2008 inaugurated site. The new R&D center consists of test areas for application testing and engineering as well as special laboratories for Chem-Trend release agents and process aids and Kluber Lubrication speciality lubricants. As a next step, Freudenberg plans to expand the manufacturing facilities for speciality lubricants, release agents and process aids. An extended warehouse and bulk storage capacities are also planned. By the end of the expansion, the Qingpu site will have an area of some 66,000 square meters. The plant produces speciality lubricants, high-performance mold release agents and processing aids for automotive applications, conventional and renewable energy production, the construction business, the transportation industry and many others. (From a press release on July 14, 2014)

Product Development

Bellows for Air Springs
-TrelleborgVibracoustic has developed a new bellows technology for air springs. The "ZAX bellows" combines the good torsion decoupling capability of the axial bellows with the dimensional stability of the cross-ply bellows. The new bellows technology will go into series production in 2015 on the rear axle of a number of new SUVs. (From a press release on February 13, 2015)

Active Vibration Control System
-TrelleborgVibracoustic has developed an active vibration control for electric vehicles with range extender. The system enhances driving comfort by eliminating vibrations of the 3- or 4-cylinder combustion engine used to extend the driving range. The TrelleborgVibracoustic Active Vibration Control (AVC) system identifies and cancels specific dominant structure borne vibrations and resultant sounds. (From a press release on July 2, 2014)

Hydrobush for Heavy SUVs
-TrelleborgVibracoustic has developed the most powerful hydrobush for heavy SUVs. These comfort-boosting chassis bushings have not been available in this vehicle segment before. The new component is used in the "Range Rover" and "Range Rover Sport". The key component of this innovation is a special hybrid stopper made of aluminum and high-performance plastics that can take loads of up to approximately ten tons. (From a press release on June 17, 2014)

Air Suspension for Compact SUV
-TrelleborgVibracoustic has developed the first air suspension for the compact SUV segment. The system enables consistent ground clearance while driving and enables the body to be raised by up to 40 millimeters above the standard level of 190 millimeters for better handling of rough terrain. With the Sportplus or low level setting, the body is lowered by 10 millimeters from the normal level. The lower center of gravity improves drive quality and reduces fuel consumption at higher speeds. (From a press release on March 24, 2014)

Hydro-mechanical Piston Accumulator
-Freudenberg Sealing Technologies has developed hydro-mechanical piston accumulator for dual-clutch direct-shift gearbox. It enables silky-smooth gearshifts, even if the oil pump is not running.

Friction less Crankshaft Seal (LEVITEX)
-Freudenberg Sealing Technologies is developing friction less crankshaft seal. It reduces the CO2 emissions of vehicles by 0.5-1.0 gram per kilometer. And because less friction also means less wear, so it ensures a prolonged operation life expectancy. It'll be launched in 2017.

Nonwoven Separator for HV/EV Battery
-A wafer-thin yet extremely durable nonwoven battery separator with a functional ceramic impregnation produced by Freudenberg Nonwovens keeps positive and negative poles permanently separated from each other.

-Major projects in FY ended Dec. 2014:

• Production location of Valinhos, Brazil (Freudenberg Chemical Specialities)
• Research and development center in Qingpu, China (Freudenberg Chemical Specialities)
• Large administrative building in Weinheim, Germany
• Production halls and plant infrastructure at Oberwihl, Germany (Freudenberg Sealing Technologies)

Investment outside Germany

-The Company is underscoring its commitment to South America. The Company is investing in nonwoven and seal production in Brazil, among other things. The Freudenberg Nonwovens Business Group will be commissioning a new manufacturing plant in Jacarei for the Technical Products and Hygiene market segments. In addition, the Company is also expanding its commitment to the automotive industry and commissioning a new production line for thermoplastic high-performance components in Diadema together with its Japanese Partner NOK (Nippon Oil Seal Industry Co., Ltd.). Both investments are part of a BRL 40 million budget (around EUR 13.2 million) that Freudenberg had earmarked for the region for innovations, capacity expansion and general process optimization. (From a press release on February 6, 2014)


-Freudenberg & Vilene Nonwovens (Suzhou) Co. Ltd., which is a joint venture between Freudenberg and Japan Vilene Company, announced its plan to construct a new production line for automotive headliner materials. Production on the new line is scheduled to begin in the summer of 2016. As of October 2014, the joint venture sold an aggregate total of 10 million meters of non-woven fabrics, which are used in approximately 3 million vehicles. (From news releases issued by multiple sources on April 7, 2015)

-TrelleborgVibracoustic announced that it has inaugurated the extension of its production plant in Yantai, Shandong Province, China. By doubling its production capacity in Yantai, the company is serving the needs of the rapidly growing Chinese market. The total investment of TrelleborgVibracoustic for buildings, facilities and machinery in the extended production space of 8,000 square meters will amount to CNY 200 million (EUR 25 million). In addition to chassis mounts and commercial vehicle air springs the site's 380 employees now are also producing engine mounts and torsional vibration dampers for local and global OEM as well as Tier 1 suppliers. The Yantai site presently has more than 16,000 square meters, comprising R&D capabilities for tooling and process design as well as manufacturing and assembly. (From a press release on November 6, 2014)


-TrelleborgVibracoustic is expanding its global presence with a new production site in Thailand. Starting in the second quarter of 2015, engine mounts, chassis components, and dampers will be produced at the site in Rayong. The new production of TrelleborgVibracoustic is close to Ford and Suzuki and other OEMs. Over the coming years, around 200 employees will produce chassis components, engine mounts, and dampers for local customers. The production area of 3,900 square meters can be further extended by another 2,000 square meters. (From a press release on October 8, 2014)