The global technology group Freudenberg was able to continue its good business development despite challenging economic conditions. In 2016, the Group boosted sales to €8,590.1 million (previous year: €7,571.6 million) on the basis of the pro-rata consolidation of joint ventures, representing a rise of €1,018.5 million or 13.5 percent over the previous year. Adjusted for the effects of acquisitions – especially of Japan Vilene Company in April 2016 and the Vibracoustic Group in July 2016 – amounting to €967.3 million and exchange rate effects (€-216.8 million), sales grew by 3.7 percent or €282.6 million compared with the previous year.
Consolidated profit ran at €1,095.1 million (previous year: €522.0 million) including the special effect of acquisitions. As at December 31, 2016, the Freudenberg Group employed 48,010 people (previous year: 40,474 people). The significant rise was mainly due to the acquisitions effected in 2016.
“We are on track to become one of the most innovative broadly diversified global technology groups,” said Dr. Mohsen Sohi, CEO of the Freudenberg Group, at the annual press conference held in Weinheim on Wednesday. “We continue to grow profitably and sustainably and the implementation of our strategic projects is proceeding fully in line with our plans. This success is the result of the hard work and excellent performance of our more than 48,000 employees worldwide.”
These business figures are based on the pro-rata consolidation of joint ventures, a method used by Freudenberg for the management of its operating activities in 2016.
Under IFRS financial reporting standards, joint ventures are always consolidated by the equity method. This means that the 50:50 joint ventures are not taken into consideration in sales and employee figures. On the basis of this method – and as a result of the acquisitions during 2016 – sales in 2016 amounted to €7,900.1 million (previous year: €6,410.9 million), €1,489.2 million or 23.2 percent higher than the previous year.
Profit from operations (EBIT) amounted to €1,245.4 million (previous year: €583.9 million). Consolidated profit was €1,086.9 million (previous year: €520.8 million). These improvements were mainly the result of higher sales, efficiency improvements and in particular special effects as a result of the acquisitions of Vibracoustic and Japan Vilene Company.
Cash flow from operating activities in the 2016 financial year amounted to €945.1 million, corresponding to a year-on-year increase of €182.6 million. Liquid funds at year-end amounted to €960.7 million (previous year: €1,055.7 million).
“We have again invested vigorously and increased our investment rate to 5.2 percent (previous year: 4.7 percent),” said Dr. Ralf Krieger, Member of the Board of Management.
On the basis of the equity consolidation of the joint ventures, Freudenberg invested a total of €1,629 million in 2016 including €1,222 million (previous year €138 million) in acquisitions and €407 million (previous year: €303 million) in production plants, tangible assets, buildings and intangible assets (additions to the statement of financial position). Of this amount, Freudenberg invested €148 million in Germany (previous year: €105 million) including €114 million (previous year: €75 million) in Weinheim.
With an equity ratio of 45.0 percent (previous year: 51.1 percent) Freudenberg continues to hold a healthy equity base. The rating agency Moody’s Deutschland GmbH, Frankfurt am Main, upgraded its credit rating of Freudenberg SE, Weinheim, by one notch to A3. This gives the Group a single A rating. The outlook for the rating is stable.
Innovation
For the Freudenberg Group, innovation is the most important pillar of corporate success. Freudenberg invested a record amount in innovation during the year under review; the Freudenberg Group conducted research and development activities worth €371.9 million (previous year €315.3 million) based on the pro-rata consolidation of the joint ventures. This corresponds to a research and development ratio of 4.3 percent (previous year: 4.2 percent). The objective of all activities is to further increase the share of new products in sales. The share of products less than four years old reached 30.4 percent on the basis of pro-rata consolidation of the joint ventures (previous year: 26.0 percent).
During the year under review, an average of 3,105 employees (previous year: 2,772 employees) were employed in research and development based on the pro-rata consolidation of the joint ventures. Once again, the main regional focus was on Germany, with 1,618 employees.
The Business Groups’ innovation activities benefit from materials competence, which is being constantly expanded, among other things via technology platforms. The Freudenberg Group focused on the main overarching technologies of relevance to several Business Groups.
In the 2016 financial year, Freudenberg closely addressed the following technology platforms: nonwovens, sealing technology, molding, friction/wear & lubrication, surface technologies, polymers, and reactions and mixtures. These are knowledge transfer platforms and enable the creation of synergies.
Operational Excellence
Through Operational Excellence activities, Freudenberg was able to reduce the share of administrative expenses in sales from 7.8 percent to 7.4 percent based on the pro-rata consolidation of joint ventures.
In the year under review, Freudenberg continued to improve its compliance structures in line with legislation and its own standards. A uniform Code of Conduct was introduced throughout the Freudenberg Group.
Portfolio
In the 2016 financial year, Freudenberg intensively developed its portfolio. Major acquisitions and disposals were as follows:
Japan Vilene Company became a new Business Group in the Nonwovens and Filtration Business Area effective April 1, 2016. The shareholders are Freudenberg SE, Weinheim (75 percent) and Toray Industries, Inc. (Toray), Tokyo, Japan (25 percent).
In early July, Freudenberg acquired the 50-percent stake in Vibracoustic GmbH, Darmstadt held by its former joint venture partner Trelleborg Holding AB, Trelleborg, Sweden. The Vibracoustic Group is the worldwide market and technology leader for antivibration components and modules for the global automotive industry. As the sole shareholder, Freudenberg has greater flexibility to further develop the Vibracoustic Group strategically.
In August, Freudenberg acquired the laundry care specialist Gimi S.p.A. headquartered in Monselice, Italy. With its process know-how and its product range, Gimi ideally complements the portfolio of Freudenberg Home and Cleaning Solutions.
In early October, the business of Freudenberg Schwab Vibration Control was sold to Trelleborg Holdings Germany GmbH, Stuttgart. Under its new ownership, the company has long-term prospects of continued growth and global expansion.
Investments
In addition to these acquisitions, Freudenberg again invested vigorously in machinery, plant and buildings in the year under review. For example, Freudenberg Sealing Technologies expanded production capacity in Oberwihl, Germany; Bursa, Turkey; and Kecskemét, Hungary. Furthermore, Freudenberg Chemical Specialities commenced construction of a European logistics center for Klüber Lubrication, Chem-Trend and OKS in Maisach, Germany. Japan Vilene Company began construction work on a new production plant in Aguascalientes, Mexico. In Weinheim, a large administration building in the Industrial Park was handed over ready for occupation by the tenants at the end of the year under review.
Brand management
The Freudenberg global brand was implemented across the Group as scheduled during the year under review. The brand offers an opportunity to raise the Group’s international visibility and generate a competitive edge in the market.
Human resources
In its pursuit of excellence, Freudenberg further expanded its talent management. One goal is to foster diversity in the company in order to recruit and retain the best employees.
Based on the pro-rata consolidation method for joint ventures, the Freudenberg Group employed 48,010 people as at December 31, 2016 (previous year: 40,474 people). The increase in headcount – in some cases substantial – in the various regions is mainly attributable to the acquisitions completed in 2016. Employee numbers rose as follows: in Germany to 11,246 (previous year: 10,681), in Europe (without Germany) to 13,012 (previous year: 10,662), in North America to 10,156 (previous year: 8,517), in Asia to 11,405 (previous year: 8,627) and in South America to 1,731 (previous year: 1,521).
In 2016, 122 young people began their training at Freudenberg’s German companies. In total, 425 people were training with Freudenberg in Germany as at December 31, 2016.
Responsibility for society
As a values-oriented, family-owned technology group, success for Freudenberg is financial success as well as fulfilling our responsibility for society. These two goals have been inseparably linked since the foundation of the company. Compliance, human rights and labor, sustainability, occupational health and safety and environmental protection along with corporate citizenship are anchored in Freudenberg’s values and principles.
Occupational health and safety
The safety of employees at the workplace is of paramount importance for Freudenberg. Despite all efforts, the LDIFR (Lost Day Incident Frequency Rate – this rate measures all incidents at work involving at least one day’s absence per million working hours) based on the pro-rata consolidation of the joint ventures was 1.7 (previous year: 1.3) during the year under review. Freudenberg will be devoting particular attention to this issue in 2017.
Corporate citizenship
For Freudenberg, corporate citizenship goes beyond the value chain. The objective of the “e²” (education and environment) international program is to give people access to education and work and to encourage environmental protection. To that end Freudenberg is making a total of €12 million available over 6 years. From the launch of the initiative in the summer of 2015 up to the end of 2016, funding in the amount of about €2.6 million was approved for 36 projects, from small actions to major education programs in the direct neighborhood of Freudenberg sites.
Projects to help refugees also demonstrated that Freudenberg offers support where aid is needed. Of the total amount of €2.6 million available for this particular cause, €1.3 million has already been allocated to 70 projects.
Conclusion for 2016
“We can look back with pride on the progress we made in 2016. We have become more efficient, we have expanded our excellence and leveraged further Group potential. We have become more visible and attractive in our markets with our global brand,” said Sohi.
Current developments
The Freudenberg Group started the 2017 financial year with a slightly improved order book in line with the market environment. However, the macroeconomic situation remains challenging – especially in South America and Russia. Equally challenging are developments in the oil and gas business. At the same time, new technological developments call for new solutions – from e-mobility and the demands of autonomous driving in the automotive sector to viable concepts for renewable energies and the implementation of Industry 4.0.
In total, Freudenberg plans to initiate investment projects with a total value of €320 million in 2017, based on the pro-rata consolidation of joint ventures. Of this amount, about €90 million are to be invested in tangible assets in Germany including €30 million in Weinheim.
Outlook for 2017
On the basis of its current assessment, despite all the challenges faced, the Freudenberg Group expects organic growth in sales between 1.0 and 3.0 percent and profit from operations slightly above the previous year’s figure. Almost all Business Groups are likely to contribute to this performance. On the basis of this forecast, Freudenberg expects stable development in its return on sales.
