Check against delivery
Jeffrey Schwartz
Executive Vice-President,
Chief Financial Officer and Secretary
Dorel Industries Inc.
2016 Annual Meeting of Shareholders
Montreal
May 26, 2016
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Thank you Martin.
I’ll begin with a quick review of our positive Q1 results, announced earlier this month.
Total revenue was down slightly at $646 million. However, adjusted net income for the
quarter jumped 66.7% to $19.7 million or $0.60 per diluted share from $11.8 million or
$0.36 per diluted share in 2015. Last year, FX had a net negative impact on Q1’s
earnings of approximately $0.30 per diluted share.
For all of last year, the net negative impact on operating profit was $43 million,
obviously a lot of money for Dorel, or any organization for that matter. We’ve had a
good start to the year as the US dollar weakened during the first quarter and this
allowed us to avoid the strong headwinds of 2015. In fact, this past quarter currency
had no net material effect on the Company which underlines the job we’ve done in
mitigating the situation by raising prices to counterbalance FX in our offshore markets.
To be clear, however, currency issues have not disappeared. It is something we monitor
very closely as over half of our operating profit is derived from outside North America.
There is still some risk as the US dollar has strengthened a bit. Should it strengthen
further we could face headwinds again, but if the status quo is maintained we should be
OK.
Dorel is well hedged through the year, but we can only protect ourselves this way to a
certain degree.
We have had a renewed focus on our balance sheet and on generating increased cash
flow, and I’m pleased to say we’ve made excellent progress. Coming off last year’s
positive fourth quarter, cash flow used in operating activities during Q1 this year was
$5.9 million, significantly less than the $86.5 million for Q1 in 2015. The main reasons
for this improvement were a higher net income and decreased inventory levels
compared with increased inventories during the first quarter of 2015. March 31 yearover-year inventories were down $82 million.
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A couple of things I would like to point out about our share price. First, I remind you
while we report in US dollars, our shares trade in Canadian dollars which gives us a
slightly unrealistically inflated multiple. Secondly, our dividend—which is $1.30 per
year—is paid in US funds. It’s fair to say that investors should take this into account
when determining their return on Dorel.
Outlook
As you’ve heard from Martin, 2016 has started off very nicely with a significant increase
in earnings. Here’s how we currently see things for the rest of this year.
Juvenile has made significant progress due to improved margins and conscientious cost
containment. While the current second quarter won’t exceed last year’s Q2, this is just
a function of timing, and we’re confident of a much better 2016 due to organic sales
growth in the majority of our markets.
The sole exception is China where we are managing the planned exit of third party
competitor sales from our factories there, offsetting these lost sales with insourced
Dorel product and significant improvements in operations. The second half in Juvenile
will continue the positive trend of Q1.
We fully anticipate the success in Home Furnishings to continue. Q1 was its best
quarter in many years as they are executing well on furniture sales to the e-commerce
channel.
Several years ago we realized that this channel was going to be the future and we’re
now capitalizing on the operational investments we’ve made to increasingly capture this
business. There is a wider product assortment being placed with more customers each
year, and the results speak for themselves. We do see the pace of earnings
improvement slowing somewhat, but expect to continue to deliver strong results again
this year.
It’s a bit of a mixed bag at Dorel Sports. Pacific Cycle had a great first quarter and with
renewed brand strength from both Schwinn and Mongoose, as well as growth with ride-
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on toys, the division will continue to grow modestly through the year, surpassing 2015 in
sales and earnings.
Caloi remains on target to meet its earnings objectives, despite the situation in Brazil.
Although sales will be down year-over-year, we remain pleased our investments in
Brazil.
Cycling Sports Group is a bit of a different story. Price competition in the IBD sector has
been making for a challenging first half and demand for premium bicycles in general is
uncertain.
We are cautiously optimistic about the second half of the year as Cannondale’s line of
model year 17 bikes is compelling and there has been good reaction to recently
introduced models. Additional models will be rolled out later this year. We will continue
to be proactive in CSG and will closely monitor the situation through the year.
Overall, Dorel Sports is expected to exceed 2015’s performance.
At this point Martin and I will be pleased to take any questions you may have.
Thank you.
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