Long-term strategy leads to sustained success

Weinheim, April 9, 2014. In the 165th year of its history, Freudenberg, the internationally active family company, was more successful than ever before. In the 2013 financial year, the technology group reported record sales for the fourth year in succession, on the previous consolidation basis at €6,622.5 million (previous year: €6,321.7 million). Adjusted for the effects of acquisitions and disinvestments to the amount of €148.1 million and exchange rate effects, sales were 5.4 percent or €338.9 million higher than the previous year. Consolidated profit ran at €401.5 million, based on a significant improvement in business operations, compared with the figure for the previous year (€432.7 million), which included one-off extraordinary items. As at December 31, 2013, the Freudenberg Group employed 39,897 people (previous year: 37,453 people).

“Freudenberg is now more innovative and more successful than ever before,” said Dr. Mohsen Sohi, Speaker of the Board of Management of the Freudenberg Group, at the annual press conference held in Weinheim on Wednesday. “Despite a challenging economic environment and negative exchange rate effects, we have grown profitably and sustainably. Sales increased in almost all Business Areas.”

The development figures are based on the pro-rata consolidation method previously used as Freudenberg continues to use this method for the management of its operating activities, including the activities of the 50:50 joint ventures.

In its external financial reporting, the Freudenberg Group applied the new financial reporting standards IFRS 10, 11 and 12 for the first time. This means that the “non-controlled” 50:50 joint ventures – i.e. the joint ventures over which Freudenberg does not exercise industrial control – are no longer included in the consolidated financial statements as 50  percent holdings, but are consolidated for the first time by the equity method.

This results in significant changes with regard to sales, total assets, the equity ratio and the number of employees.
The NOK-Freudenberg Group China, TrelleborgVibracoustic and Freudenberg NOK Mechatronics (now enmech) Business Groups are consolidated by the equity method. Sales and the number of employees, as well as assets and liabilities, are therefore not taken into consideration in the consolidated financial statements.

In accordance with these accounting rules, at €5,646.1 million, 2013 sales fell slightly below the 2012 level (€5,681.3 million). This was due to the consolidation of Vibracoustic in the 2012 figure up to its inclusion in the TrelleborgVibracoustic joint venture in July 2012. If the inclusion of Vibracoustic for part of the year is eliminated, sales rose by 6.7 percent from €5,291.4 million in 2012 to €5,646.1 million in 2013.

Profit from operations (EBIT) amounted to €457.3 million (previous year €531.6 million). Consolidated profit totaled €398.8 million, based on a significant improvement in business operations compared with the previous year (previous year: €437.7 million). The figure for the previous year included high one-off extraordinary income, especially as a result of the contribution of the Vibracoustic Business Group to the TrelleborgVibracoustic joint venture in July 2012.

Cash flow from operating activities rose by €70.7 million to €515.9 million (previous year: €445.2 million). Cash and cash equivalents at year-end amounted to €672.9 million (previous year: €652.2 million). In the 2013 financial year, investments totaled €554.7 million (previous year: €194.4 million, including special effect from the contribution of the Vibracoustic Business Group to the TrelleborgVibracoustic joint venture).

“The financial basis of the Group was again strengthened, with a slight increase in the equity ratio,” said Dr. Ralf Krieger, Member of the Board of Management.
With an equity ratio of 47.3 percent (previous year: 47 percent), the Freudenberg Group remains in a very good, solid equity situation.

Moody´s rating agency gave the Freudenberg Group (as Freudenberg SE for the first time) a rating of Baa1 and confirmed the outlook as “stable”.

All in all, the Freudenberg Group workforce at year-end on the basis of the equity method totaled 33,245 employees compared with the restated figure of 30,786 employees for the previous year.

Organizational changes
“We are a successful company and want to remain so in the future,” said Mohsen Sohi. “That’s why we repeatedly review the success factors of our company and realign them with reference to changed conditions.”
In the 2013 financial year, Freudenberg launched a number of key projects, one of which concerns organizational changes at Freudenberg. The aim of the project is to coordinate entrepreneurship, value for customers and growth in every Business Group in such a way so that the Group can harness its entire potential, reinforce its performance excellence and improve efficiency.
Following a careful review, the Board of Management took fundamental decisions which will be implemented in the course of 2014.
The seal and vibration control business of NOK-Freudenberg Group China, Freudenberg Schwab Vibration Control and Dichtomatik is being brought together under the roof of Freudenberg Sealing Technologies. Nonwovens business will strengthen its competences in a new Business Group with a view to asserting its leading position in the face of tough global competition.
The cross-Group innovation driver Freudenberg New Technologies will focus on its innovation activities as a corporate function. In addition, the new organizational orientation will lay the foundations for pooling administrative processes across the boundaries of Business Groups and making them as efficient as possible.
Other key projects are the global talent management process, which aims to ensure the availability of appropriately qualified managers to meet our demanding goals, an improved operational and strategic planning process and the refinement of the risk management system.

Current developments
The market environment of the Freudenberg Group remains demanding. Many countries continue to face significant structural problems. Freudenberg is asserting its position impressively in this environment. The good situation with respect to orders in hand in all Business Areas led to satisfactory business developments over the first three months of the year.

In order to underline its value orientation, Freudenberg signed the Global Compact of the United Nations in mid-January 2014, having already initiated activities in 2013. The Global Compact is a voluntary agreement, currently with over 10,000 signatories, including more than 7000 companies from over 140 countries, who commit to managing their business in a sustainable, value-oriented way. The principles underlying the Global Compact are embodied in other words in the Freudenberg Group’s Guiding Principles. There are a total of 10 principles in the four fields of human rights, labor, environment and anti-corruption.

In the eurozone, Freudenberg’s largest sales region, there will only be a slight improvement in economic growth. Germany will again demonstrate above-average performance compared with other EU countries. In the USA, we expect positive growth rates. As far as the emerging economies are concerned, we continue to anticipate high growth rates – albeit at a slightly lower level compared with previous years in some cases. Freudenberg intends to outperform the market in spite of the differing forecasts for the individual regions. To that end, the Group will be offering customers new innovative solutions and will be driving its key projects forward.
“For the Freudenberg Group, we expect moderate growth in sales and profit from operations in the 2014 financial year,” Mohsen Sohi continued. “The broad diversification of our product portfolio will be the key success factor.”

Details of business development
The consolidated annual financial statements have been drawn up on the basis of Freudenberg Societas Europaea (Freudenberg SE). Freudenberg SE bundles all Freudenberg business with the exception of Freudenberg & Co. KG and the Freudenberg Service Support and Freudenberg Insurance Divisions.

The 2013 financial year in figures
On the basis of the equity method, sales, at €5,646.1 million for 2013, were slightly below the level of 2012 (€5,681.3 million). However, this was due to the inclusion of Vibracoustic in the 2012 figure before it was contributed to the TrelleborgVibracoustic joint venture in July 2012. If the inclusion of Vibracoustic for part of 2012 is eliminated, sales grew by 6.7 percent from €5,291.4 million in 2012 to €5,646.1 million in 2013.

Selling costs and administration expenses grew as a result of the global expansion strategy and higher pay increases. Various restructuring measures implemented in 2013 were insufficient to compensate for this increase in full.

“Net debt fell by 17 percent from €625.5 million to €519.1 million, although the Group invested about €555 million,” Ralf Krieger underlined.

Strategic development of portfolio structure continues
The Freudenberg Group made great progress in implementing its strategy and continued with the proactive development of its portfolio, both in established business fields and in strategic growth markets: chemical surface treatment, medical technology, oil and gas, industrial filtration and vibration control technology for high-growth industry segments and rail vehicles. For these strategic business fields, Freudenberg aims for stronger growth through a buy and build strategy and has reinforced growth by acquisitions and investments:

  • In January 2013 Freudenberg Oil & Gas Technologies acquired the Vector Technology Group, Lysaker, Norway, one of the largest suppliers of sealing solutions for high integrity applications in the upstream field.
  • With effect from January 1, 2013 Helix Medical acquired 50 percent of the shares of Cambus Teoranta, Spiddal, Ireland. The joint venture manufactures high-quality precision components for the medical device industry.
  • With effect from March 1, 2013, Freudenberg Filtration Technologies acquired Aquabio Limited, Worcester, United Kingdom, a leading specialist in water treatment and wastewater filtration systems for industrial applications.
  • Freudenberg Chemical Specialities entered the market for food additives through the acquisition, on August 7, 2013, of the shares in the Capol Group, a leading global supplier of release agents, glazes and sealing agents for the confectionery industry.

Freudenberg also expanded its position in established business: The integration of Vibracoustic and the automotive anti-vibration business of Trelleborg AB, Trelleborg, Sweden, in the TrelleborgVibracoustic joint venture has made considerable progress.

In June 2013, TrelleborgVibracoustic and the shareholders of the Turkish company HSS Otomotiv ve Lastik Sanayi A.S., Bursa, Turkey, formed a 50:50 joint venture to produce commercial vehicle air springs.

Another example of the expansion of established business is the acquisition, with effect from January 1, 2014, of PTFE Compounds GmbH, Biere, near Magdeburg. Through this acquisition, Freudenberg Sealing Technologies has further expanded its materials expertise. In addition, the Business Group acquired the remaining shares in Freudenberg Sealing Technologies Sanayi ve Ticaret A.S., Bursa, Turkey.

The Freudenberg Group invested a total of about €555 million including €229.3 million in production plant, tangible assets, buildings and intangible assets. Examples include the expansion of production capacities for Evolon® microfilament products in Colmar, France, a new plant for cabin air filters in Chengdu, China, two new logistics centers in Kaiserslautern and in Potvorice, Slovakia, and a new site for air filters in Jacareí, Brazil. EagleBurgmann built a new production facility for nonmetal expansion joints and metal bellows in Chennai, India.

In Germany, the Freudenberg Group invested about €120 million, including about €30 million at its headquarters.

At its facility in Kaiserslautern, Freudenberg Nonwovens commissioned a regranulation unit which recycles material rejected from production.
Freudenberg Sealing Technologies installed a new automated injection molding unit for the production of energy saving seals.

In 2013, the Freudenberg Group expensed a total of €193.0 million (previous year: €191.8 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, 1,936 associates (previous year: 1,973 associates) were employed in research and development throughout the Freudenberg Group, with the regional focus in Germany, where 1,161 associates (previous year: 1,271 associates) were employed.

With the global “ideaTrophy”, Freudenberg successfully extended the search for new business ideas to include external creative minds and experts. The Idea Pool initiative for new business ideas within the Group brought products through to the market. One example of the Group’s innovative power is a wound dressing with integrated enzymes that accelerates the healing process. Freudenberg Nonwovens is the first company to market wound dressings that combine hydroactive nonwovens and nonwovens made of chitosan fibers. This shortens treatment time and cost quite substantially, particularly with reference to chronic wounds.

Human resources
In its internal reports – with pro-rata consolidation of the joint ventures – the Freudenberg Group records 39,897 associates on December 31, 2013 (previous year: 37,453 associates). On the basis of the equity consolidation, the Freudenberg Group employed 33,245 associates (previous year: 30,786 associates).
Based on the consolidation at equity, the headcount rose significantly in Europe (excluding Germany) to 8,375 (previous year: 7,572), in Asia to 6,231 (previous year: 4,874) and in North America to 7,200 (previous year: 6,872). This was attributable in particular to increases as a result of acquisitions. Since January 1, 2013, Freudenberg has held industrial leadership of 50:50 joint ventures in China and South Korea belonging to the Freudenberg Nonwovens and Freudenberg Filtration Technologies Business Groups and these are included in full in the consolidated accounts. This resulted in an additional 532 associates in the headcount for Asia. The headcount in Africa/Australia remained largely unchanged at 416 (previous year: 457), with the same applying for the headcount of 1,485 (previous year: 1,476) in South America/Central America. In Germany, the number of employees rose slightly to 9,538 (previous year: 9,535).

In 2013, 170 young people began their training at Freudenberg’s German companies. In total, 528 people were training at Freudenberg in Germany as at December 31, 2013.

Freudenberg rolled out a new talent management process throughout the Group in 2013. The objective is to achieve comparability in the assessment process and to facilitate personnel development beyond the boundaries of individual Business Groups.

Occupational health and safety
As a value-oriented company, Freudenberg is firmly committed to occupational health, safety and environmental protection, as well as corporate social responsibility. Freudenberg was able to make further improvements in all these areas in 2013. In spite of an increase in business, the total number of accidents remained at a low level and the number of serious accidents fell from seven to six.

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 to provide specific assistance in the spirit of responsible corporate citizenship.