If there are any worries that new reporting methods of International Financial Reporting Standards (IFRS) could bring a downward spiral to Freudenberg NOK’s automotive business, they are quickly assuaged by the US leaders of the family-owned group of companies.

Freudenberg North America’s auto business units contribute a huge amount to the company’s bottom line, according to Leesa Smith, president and regional representative of Freudenberg North America. “Our auto business makes up 24% of total Freudenberg sales and represents the largest portion of its business,” says Ms Smith, a 24-year Freudenberg veteran. But that represents a drop in auto sales, from 35% in 2012, resulting from new IFRS reporting requirements, she adds.

“I’m particularly bullish on the auto business [and the related economy],” says Ms Smith, adding that the $2.1bn Freudenberg North America group is on a growth spurt.

IFRS issues

One problem with new IFRS reporting methods is that, in comparing Freudenberg’s auto share percentage in overall business from 2011 to 2013, it “provides a false perception that our auto business is decreasing, when in reality actual sales to our auto customers are increasing”, explains Ms Smith. The decrease is a result of direct changes in reporting standards.

According to the new IFRS rules, 50/50 joint ventures are not counted in total company sales if the company does not have the casting vote, based on the new equity consolidation method. This rule affects Freudenberg’s 50/50 joint ventures, including its important Trelleborg Vibracoustic deal and Freudenberg-NOK Group China units, according to Ms Smith.

In mid-2012, Freudenberg formed a 50/50 joint venture with Trelleborg Vibracoustic, which Ms Smith says had a six-month negative impact on Freudenberg revenues, and in 2013 a full-year impact, based on IFRS rules.

Otherwise, Freudenberg North America has been reorganising itself to become more efficient. Last year, Freudenberg consolidated its business groups from 15 to 12, boosting sales from $1.8bn to $2.1bn in North America, the company said in a statement. Staff levels grew 4% to more than 8000 employees.

Meanwhile, parent company Freudenberg Group, based in Weinheim, Germany, posted sales of €6.6bn in 2013, employing about 40,000 people globally.

Destination Michigan

Freudenberg makes products ranging from auto engine air filters to sealants for gas wells and household cleaning supplies. The company supplies all original equipment manufacturers with parts and is heavily involved with the ‘Detroit 3’ – GM, Ford and Chrysler – and other automakers.

The company opened its new North American regional corporate centre in Plymouth, Michigan, in October 2013, consolidating all corporate functions in the state, moving from Manchester, New Hampshire, having been located there since 2003. The move puts the regional corporate centre close to Freudenberg’s major businesses in the US and near Detroit Metro, a national airport hub. Freudenberg-NOK Sealing Technologies, the company’s largest auto unit, is in Plymouth; ChemTrend Inc in nearby Howell, Michigan.

“Automotive has always been a very important aspect of Freudenberg’s business, and that’s part of the reason we chose southeast Michigan for our regional corporate centre,” says Ms Smith.

Freudenberg is rebounding nicely after the 2008-09 economic crisis that crippled large swathes of American businesses, according to Ms Smith, who says: “We’re seeing systemic changes here. People are jumping back into the stock market. There’s a slow, steady recovery going on.”

The company’s 2013 North American sales rose 5.9% overall, fuelled by gains in oil and gas as well as an expanding medical industry, Ms Smith told reporters in April. Freudenberg has reported global sales gains in the past four consecutive years, increasing sales by a total of 21% in the period, she added.

Auto business has risen steadily for Freudenberg-NOK Sealing Technologies, both in North America and Europe, according to Ms Smith. Sales have increased on both continents, as well as in Asia. In fact, the Freudenberg-NOK Group in China grew approximately twice as strongly as the overall Chinese auto industry, says Ms Smith.

Finding the right areas

In 2013, Freudenberg invested more than $80m in North America, after investing about $100m in 2012. “We expect to continue these investments,” says Ms Smith. “We are acquisitive, so we are looking for the right acquisitions that are focused in five green areas.”

These ‘green’ areas include: chemical surface treatments, medical technology, oil and gas, industrial filtration technology and vibration control technology, focusing on wind energy and agricultural and construction machinery.

“We’ve identified a few new fields where there are good [growth] possibilities. These include new forms of chemical surface treatment, medical devices and filtration technology for diverse applications, such as clean air,” says Freudenberg chief executive Moshen Sohi, who joined the company in 2003 after spells with Honeywell, Allied Signal and NCR.

He adds: “We hope to increase sales in these fields by a greater amount than in the rest of the business... [but] we are not going to try to force a particular size on any specific part of the company, because we don’t think this is the way to plan ahead.”

Diversity is an important goal for Freudenberg’s regional groups. “There’s a drive toward entrepreneurship,” says Mr Sohi. Ms Smith concurs, saying: “We’re very driven to be entrepreneurial.” That includes working on a “culturally competent leadership development” programme, she adds. The first group began in late 2012 and graduated in April 2014. A second group begins in January 2015.

Innovation push

Freudenberg is also pushing innovation, as well as research and development. In 2013, Freudenberg Oil & Gas built a specialised lab for material and product testing for oil and gas applications in Houston, Texas. It is looking for commonality in technology and ways to leverage synergies across groups.

Freudenberg’s updated Plymouth testing labs have unique spectral scanning technology. The applications are equal to or better than those analytical technologies used by some state forensic operations, according to Joe Walker, Freudenberg-NOK’s global director of advanced material development.

Ms Smith describes Freudenberg as a family-owned company that gives autonomy to individual business units, with employee involvement being paramount. “It’s a very modest culture deeply rooted in its guiding principles,” she says.

Freudenberg North America is a holding company of Freudenberg & Co. The 165-year-old family-owned German enterprise includes 320 shareholders, though none hold more than a 2% stake. Its US auto business began in 1955 with Greer Hydraulics in New York, which was renamed Disogrin Industries and relocated to New Hampshire in 1963. In 1989, it became Freudenberg-NOK Sealing Technologies, a joint venture between Freudenberg and NOK of Japan. n