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5. Freudenberg & Co. KG Business Report FY ended Dec. 2016

Freudenberg & Co. KG Business Report FY ended Dec. 2016

Factors
1) Net Sales
-The Company’s net sales for the fiscal year ended December 31, 2016 increased by 23.2% over the previous year to EUR 7,900.1 million. The acquisition and consolidation of both the Japan Vilene Company and the Vibracoustic Group along with increased sales in all of the Company’s business areas contributed to the increase in sales. These gains were partially offset by negative currency exchange rate effects.

2) Profit before income taxes
-The Company’s profit before income taxes totaled EUR 1,265.1 million in the fiscal year ended December 31, 2016, an increase of 89.5% over the previous year. The acquisitions of the Japan Vilene Company and the Vibracoustic Group were main contributors to the increase in profit.

Chronology of Vibracoustic Acquisition

-Trelleborg AB announced that it has signed an agreement with the Company to sell its entire 50% share in TrelleborgVibracoustic to Freudenberg. TrelleborgVibracoustic was formed in July 2012 as a 50:50 joint venture between Freudenberg and Trelleborg. The transaction is expected to be completed in the second quarter of 2016 and would be effective as from January 1, 2016. The transaction is based on an enterprise value of EUR 1.8 billion for TrelleborgVibracoustic. Trelleborg will receive a purchase consideration equivalent to an equity value of SEK 6.8 billion (EUR 731.8 million), in addition to the dividend of SEK 1.4 billion (EUR 150.7 million) received in December 2015. This corresponds to a total value of SEK 8.2 billion (EUR 882.5 million). In accordance with this transaction, TrelleborgVibracoustic was renamed Vibracoustic GmbH on April 4, 2016. (From a press release on April 7, 2016)

-Trelleborg AB and the Company announced that the 50% shareholding held by Trelleborg in the joint venture Vibracoustic GmbH was transferred to the Company. The total purchase price was approximately SEK 6.8 billion (EUR 795.4 million). Vibracoustic was founded in July 2012 as a 50:50 joint venture between the Company and Trelleborg. (From a press release on July 5, 2016)

Acquisitions

-In April 2016, the Company acquired and gained control of Japan Vilene Company, which operates as a business group within the Company’s Nonwovens and Filtration Business Area. The Company owns 75% of Japan Vilene Company, while Toray owns the remaining 25%.

Restructuring

-The Company transferred its 50% shareholding in enmech GmbH & Co. KG, Weinheim, Germany, and enmech Hungary Bt, Pecel, Hungary to its joint venture partner, NOK Corporation, Tokyo, Japan. The business was transferred at the beginning of 2016. enmech has been a Company and NOK Corporation joint venture since 2002. The Japanese partner company will incorporate enmech into its subsidiary Nippon Mektron, the world’s market leader in flexible printed circuit boards and its European subsidiary Mektec Europe. enmech has systematically developed its FPC technology over the past few years and today offers solutions for the automotive industry with its portfolio of mechatronic products. (From a press release on January 11, 2016)

-In December 1, 2016, Vibracoustic reorganized its structure by merging its six divisions into two business units – Chassis and Powertrain. The Chassis business unit is formed from the former Chassis Mounts, Micro-Cellular Urethane, and Air Springs divisions. The Powertrain business unit is comprised of the Engine Mounts, Torsional Vibration Dampers, and Isolators & Damper divisions.

Contracts

-The Company’s Vibracoustic business group has developed a cord-reinforced elastomer coupling called NRG Disc for the BMW ALPINA B7 Bi-Turbo. (From a press release on July 7, 2016)

Awards

-Wuxi NOK-Freudenberg Oil Seal (WNF), part of NOK-Freudenberg China (NFC), has received the "Excellent Quality Award" from FAW-Toyota. WNF supplies FAW-Toyota with a wide array of seals for engines, transmissions, steering systems, air-conditioning and vibration control systems. Getrag (Jiangxi) Transmission Co. Ltd., a joint venture between Getrag and the Jiangling Motors Group, presented NFC with an award for "outstanding logistics service." Anhui Jianghuai Automobile (JAC) awarded the "Quality Contribution Award." to NFC, the second time that it has received this award. (From a press release on August 9, 2016)

-The Company’s joint venture, NOK-Freudenberg China (NFC), announced that it has received an "outstanding quality award" from Guangxi Automobile Group Co., Ltd. (Wuling). (From a press release on April 28, 2016)

R&D Structure

-In 2016, the Company had an average of 2,751 employees working in research and development.

Product Development

Levitas transmission seal rings
-The Company’s Freudenberg Sealing Technologies business group presented a new generation of low-friction transmission seals at the 15th International CTI Symposium. Suited for installation in all forms of automated transmissions, Levitas seal rings feature a special design that produces a hydrodynamic oil film between the seal ring and its dynamic counter surface. During operation, the seal floats on a hydrodynamic oil film that it generates. Small pockets are incorporated across the entire circumference of the ring seal. When the shaft begins to rotate, dynamic pressure in the pockets generates axial forces, creating the oil film. As no physical contact remains between the shaft and the seal ring, only fluid friction remains, causing torque levels to decline by up to 70%. Volume production of the Levitas transmission seals will begin in 2017. Levitex seals for engines operate on a similar principle, but uses ambient air as the lubricant instead of oil, reducing frictional torque to nearly zero. The production of Levitex engine seals for a European customer is also due to begin in 2017. (From a press release on December 7, 2016)

NRG Disc cord-reinforced elastomer coupling
-The Company’s business group, Vibracoustic GmbH has developed a cord-reinforced elastomer coupling, named NRG Disc, for one of the most powerful and fastest mass-produced sedans with all-wheel drive. Jointly developed with BMW, this new coupling offers benefits in terms of durability and weight in comparison to other solutions available today. It is 32% lighter and more compact than other series solutions currently available on the market. The coupling's first series application is in the new BMW ALPINA B7 Bi-Turbo. (From a press release on July 7, 2016)

Shock absorbers for low-temperature environments
-With a new high-performance material, the Freudenberg Sealing Technologies business group (FST) is ensuring that shock absorbers can reliably do their job even in extremely low temperatures, down to -40˚C. At the same time, the new material mixture, which is coming into use in damper seals for cars and commercial vehicles, is more wear-resistant than conventional materials. The first-ever series production of the seals is already starting in the spring of 2016. A European automaker is using seals made of the new material mixture from FST on an ongoing basis in monotube shock absorbers for SUVs. (From a press release on February 23, 2016)

Fluid torsional vibration dampers
-The Vibracoustic business group has recently started to develop and produce fluid torsional vibration dampers (TVD). The fluid TVD reduces torsional vibrations of the crankshaft through the damping characteristics of a highly viscous silicone oil located in a gap created by the housing and flywheel ring. A fluid TVD dampens vibrations across a wide frequency range and achieves superior performance versus an elastomer TVD.

Investments in Germany

-The Company’s Freudenberg Chemical Specialities business group is expanding its site at Maisach in Southern Germany. EUR 40 million is to be invested in the construction of a pan-European logistics center for Kluber Lubrication, a new technical center with laboratories for Chem-Trend, and additional offices for Chem-Trend and OKS. The three companies are subsidiaries of Freudenberg Chemical Specialities. Covering an area of around 19,000 square meters, this major project underscores the growth of Freudenberg Chemical Specialities in Europe. Construction of the new logistics center and the Chem-Trend technical center is due to be completed in the second half of 2017. (From a press release on June 16, 2016)

-Freudenberg Sealing Technologies has invested approximately EUR 10 million in their Oberwihl site in Germany. The site primarily manufactures O-rings for industrial and automotive customers. The investment adds approximately 1,000 square meters of manufacturing space through the new buildings while modernizing existing production facilities and revamping plant infrastructure. The company has plans to invest several million more in additional machines. (From a press release on March 21, 2016)

Investments outside Germany

-The Company began operation on a new production line for car headliners at its Suzhou site in Jiangsu Province, China. This enables the Company to meet increasing demand for high-quality car roof linings and quality printed products in Asia. Freudenberg & Vilene Company headliners are based on nonwovens and can be finished in various ways to provide additional functionality. Apart from excellent abrasion resistance, outstanding acoustic properties and improved stain resistance, these products contribute to a marked reduction in vehicle weight when combined with other vehicle components. Freudenberg & Vilene Nonwovens is a joint venture between the Freudenberg Performance Materials business group and Japan Vilene Company. (From a press release on September 13, 2016)


-The Company’s Freudenberg Sealing Technologies business group has invested approximately EUR 10 million, in Bursa, Turkey and has inaugurated a new plant. The plant is located in the HOYAB industrial estate and spans an area of 14,000 square meters. It will supply products to a wide variety of industries including the automotive, agricultural, energy and engineering sectors. Currently, approximately 220 employees produce a range of products here, including encoders, bearing seals, radial shaft seal rings and cassette seals that are used in engines and transmissions. (From a press release on June 3, 2016)


-The Company’s Freudenberg Sealing Technologies business group (FST) announced that it is currently expanding its Kecskemet plant in Hungary, whose formal opening is scheduled for July 1, 2016. In the future, the production of up to 8.5 million transmission seals per month is expected in order to meet demand in Europe. FST has allocated a total of EUR 25 million for investment in Hungary for the period 2010 through 2018; about two-thirds of that sum has already been invested. (From a press release on April 6, 2016)


-The Company’s Freudenberg Filtration Technologies business group invested several million dollars to add a new cabin air filter production line at its facility in Hopkinsville, Kentucky, U.S.

-In VIAM Manufacturing Inc., in Manchester, Tennessee, U.S., the Japan Vilene Company installed a new injection molding line for all-weather floor mats.


-In 2016, the Japan Vilene Company business group established a new production company in Aguascalientes, Mexico, named Vitechmex Nonwovens S.A. de C.V. The new company will primarily supply Japanese customers with headliners.

-The Japan Vilene Company business group began construction work on a new production facility in Aguacalientes, Mexico in 2016. The facility will manufacture nonwovens for automotive interiors.