Second Quarter Ended June 30, 2017

Transcription

1 Second Quarter Ended June 30,

2 Except for historical information provided herein, this presentation may contain information and statements of a forward-looking nature concerning the future performance of Dorel Industries Inc. These statements are based on assumptions and uncertainties as well as on management's best possible evaluation of future events. The business of the Company and these forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ from expected results. Important factors which could cause such differences may include, without excluding other considerations, general economic conditions; changes in product costs and supply channels; foreign currency fluctuations; customer and credit risk including the concentration of revenues with a small number of customers; costs associated with product liability; changes in income tax legislation or the interpretation or application of those rules; the continued ability to develop products and support brand names; changes in the regulatory environment; continued access to capital resources and the related costs of borrowing; changes in assumptions in the valuation of goodwill and other intangible assets; and there being no certainty that Dorel s current dividend policy will be maintained. A description of the above mentioned items and certain additional risk factors are discussed in the Company s Annual MD&A and Annual Information Form, filed with the Canadian securities regulatory authorities. The risk factors outlined in the previously mentioned documents are specifically incorporated herein by reference. The Company s business, financial condition, or operating results could be materially adversely affected if any of these risks and uncertainties were to materialize. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Note: All figures are in US dollars. 2

3 As a result of impairment losses, restructuring and other costs, remeasurement of forward purchase agreement liabilities and loss on early extinguishment of long-term debt incurred in both 2017 and 2016, the Company is including in this investor presentation the following non-gaap financial measures: adjusted cost of sales, adjusted gross profit, adjusted operating profit, adjusted finance expenses, adjusted income before income taxes, adjusted income taxes expense, adjusted tax rate, adjusted net income, adjusted earnings per basic and diluted share and adjusted diluted weighted average number of shares outstanding. The Company believes that this results in a more meaningful comparison of its core business performance between the periods presented. These non-gaap financial measures do not have a standardized meaning prescribed by GAAP and therefore are unlikely to be comparable to similar measures presented by other issuers. Reconciliations of these non-gaap financial measures to the most directly comparable financial measures calculated in accordance with GAAP are included in the MD&A for the second quarter and six months ended June 30,

4 TSX: DII.B DII.A 3 business segments Dorel Home Dorel Juvenile Dorel Sports $2.6 billion in sales annually Approximately 10,000 employees Sales to 100+ countries Facilities in over 25 countries (2016 revenue - $735 million) (2016 revenue - $929 million) (2016 revenue - $939 million) 4

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6 (in thousands, other than EPS) Total revenue $ 611,270 $ 637,296 Adjusted net income $ 12,444 $ 10,193 Adjusted EPS (diluted) $ 0.38 $

7 Second Quarters ended June 30 (in thousands) Restated* Total revenue $ 184,157 $ 171,871 Gross profit $ 32,872 $ 29,075 Operating profit $ 16,715 $ 14,762 * During the fourth quarter of 2016, the Company changed its internal organization and the composition of its reportable segments. The design, sourcing, manufacturing, distribution and retail of the children s furniture was transferred from Dorel Juvenile to Dorel Home. Accordingly, the Company has restated the segmented information for the second quarter ended June 30,

8 Second quarter revenue included the highest percentage of on-line sales (52%) in Dorel Home s history and exceeded reductions in sales to brick and mortar stores. Growth was driven by increased sales in all divisions to on-line retailers. Improved margins from increased on-line sales were partly offset by slightly higher input and warehousing costs. Higher second quarter operating profit was driven by increased sales volumes, slightly offset by increased selling and general and administrative expenses. 8

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10 Seconds Quarters ended June 30 (in thousands) Restated* Total revenue $ 218,060 $ 228,911 Adjusted gross profit $ 65,207 $ 72,646 Adjusted operating profit $ 8,086 $ 8,797 * During the fourth quarter of 2016, the Company changed its internal organization and the composition of its reportable segments. The design, sourcing, manufacturing, distribution and retail of the children s furniture was transferred from Dorel Juvenile to Dorel Home. Accordingly, the Company has restated the segmented information for the second quarter ended June 30,

11 Over-riding strategy: Diverse, known brands; exciting, quality products; Company-owned distribution. Dorel Juvenile re-aligning operations to be more agile and drive profitable sales growth with a more market-focused approach to better react to juvenile industry trends. With a view to allocating greatest returns, product development projects which do not meet new growth criteria are being cancelled, overheads are being reduced and savings re-purposed to enhance brand support and digital capabilities. Objective: speeding meaningful products to market. 11

12 Second quarter revenue decreased primarily in the U.S. and European markets. U.S. POS at its largest customer increased versus prior year, but the customer limited orders to reduce their own in-stock inventory levels. Sales to several other brick and mortar customers were also lower, a reflection of challenges in this channel overall. E-commerce sales are increasing which partially offset these declines. In Europe, late product launches and manufacturing challenges in China delayed new product launches, negatively impacting sales. Revenues and earnings in Juvenile s other markets were up overall, led by strong growth in Brazil and Australia. Prior year operating profit included costs of $7.0 million associated with U.S. product liability and the year-over-year reduction in these costs was $5.8 million in the quarter. Several new products are being launched across all Dorel Juvenile s geographic markets. 12

13 Production levels at the China-based facilities increased by approximately 20% from the first quarter following the development and implementation of an intensive 60 day plan which resulted in higher costs in the short-term. The grand opening of the new Zhongshan, China campus and best-in-class test lab was held in May, which has allowed for the successful exit and sale of the old campus. The new project for China ERP/MRP system implementation launched in Q2 to establish robust operation processes for the factory. The new system will ensure on time delivery, as well as help the factory develop from a supplier role to a reliable integrated Dorel Juvenile manufacturing site. Go-live is planned for mid Various strategic initiatives were launched to grow market share. In May, Dorel Juvenile China signed a joint business plan for a strategic partnership with Alibaba, one of the world s most powerful companies. 13

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15 Safety 1 st brings together the latest pediatric knowledge and advanced engineering to create the new onboard 35 LT infant car seat. Superior fit, as advised by pediatricians, helps create a safer ride for children from 4 to 35lbs. Advanced engineering also helps control the weight of the seat, making it one of the lightest infant carriers in the world. Superior Fit for Superior Safety 15

16 Q U I N N Y Z A P P X O N E S T R O L L E R, E N D L E S S P O S S I B I L I T I E S Z A P P F L E X P L U S Z A P P F L E X Z A P P X P R E S S M E E T T H E A L L N E W Z A P P X Completely modular, compact and comfortable. Perfect from birth with Lux carrycot, Maxi-Cosi car seat or from-birth cocoon. Fully customisable to create your own one-of-a-kind Zapp X. Premium design inspired by athleisure trend. 16

17 Infanti s textile and shoe line is a product of our promise to have a complete and cross category brand, which allows parents to find all their infants needs in one place. We present a whole range of very colourful, trendy and high quality options to dress the little ones. Starting from birth - Peruvian organic cotton essentials to hip 4 year old s sneaker wear. 17

18 Second Quarters ended June 30 (in thousands) Total revenue $ 209,053 $ 236,514 Adjusted gross profit $ 48,119 $ 48,841 Adjusted operating profit $ 5,661 $ 5,236 18

19 Organic revenue declined 13.4% when removing foreign exchange fluctuations and the change in Cycling Sports Group (CSG) International s business model. Part of the revenue shortfall resulted from weakness in consumer demand in the mass bike channel due to the prolonged unfavourable North American weather. CSG revenue declined due to lower discounted sales. CSG s closeout sales in the quarter represented 7% of sales volume in 2017 compared to 21% the prior year. Excluding these closeout sales, revenues were flat and gross margins were improved. In Brazil, Caloi s top line was affected by weak consumer demand, amid ongoing political and economic turmoil, as well as increased competitive pressure as other key brands in the market began to reduce retail price points. The improvement in adjusted operating profit was due to improved margins and a reduction in operating expenses. 19

20 SuperX SE Synapse 20

21 SuperX Moterra 21

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23 1) Cycling Sports Group (CSG) IBD Division Premium Brands Innovation continuing focus SUGOI world class cycling, run and triathlon apparel and outdoor gear. Incorporates Cannondale apparel. 23

24 2) Pacific Cycle Mass merchants/sporting goods channel Full service provider bikes, parts & accessories, branded apparel Brand building has enhanced Schwinn/Mongoose awareness Electric ride-on toys. 24

25 3) Caloi 100% interest (effective March 2017) Largest bicycle brand in LATAM and leader in Brazilian market Portfolio includes full range of bicycles, from highperformance to children s mountain bikes, urban, recreational and road bikes Caloi s factory in Manaus is largest bicycle manufacturing plant outside Southeast Asia Brazil is a Dorel production hub, assembling Caloi, Cannondale, Schwinn, Mongoose & GT brand bicycles for local and export markets. 25

26 Credit Agreement Effective March 24, 2017, the Company amended its Credit Agreement with respect to its revolving bank loans and secured a term loan of $200.0 million with the same maturity date as its revolving bank loans. Net proceeds from the term loan were used to prepay its Series B and C Senior Guaranteed Notes, its Brazilian non-convertible debentures and to reduce bank indebtedness. Included in Q finance expenses is a cost of $10.2 million or $0.30 per diluted share for early extinguishment of long-term debt. With the lower average interest rates of the term loan facilities going forward, the Company expects to reduce its interest costs by approximately $4.0 million in the balance of

27 Taxes During the second quarter and six months ended June 30, 2017, the Company s effective tax rates were 27.2% and 31.2% respectively versus 12.5% and 8.6% for the same periods in the prior year. Excluding income taxes on impairment losses, on restructuring and other costs, on remeasurement of forward purchase agreement liabilities and on loss on early extinguishment of long-term debt, the Company s second quarter adjusted tax rate was 28.4% in 2017 and 15.4% in The adjusted tax rate for the first six months was 24.7% in 2017 versus 16.5% in The main cause of the variation year-over-year of the adjusted tax rate is due to changes in the jurisdictions in which the Company generated its income. The Company is stating that for the full year it expects its annual adjusted tax rate to be between 20% and 25%. However, variations in earnings across quarters mean that this rate may vary significantly between quarters. 27

28 The strength and flexibility of Dorel Home s e-commerce platform has allowed for an expansion of its on-line offerings with excellent value products at higher price points. E-commerce sales are expected to continue to drive the segment s overall growth and profits, both above plan and prior year levels for the balance of the year. At Dorel Juvenile, several factors support our confidence of a strong second half rebound. Many new products are currently entering the market, particularly in Europe and these launches will continue into In the U.S., there are several new placements at major retailers, and at Dorel s largest customer, orders are in line with point-of-sale levels, which are up over last year. This was not the case in the second quarter as that customer reduced its in-stock levels. Further, Dorel Juvenile s growth with e-commerce retailers is at a greater pace than budgeted. We also expect our smaller markets to continue their overall excellent performance. The China factory has successfully caught up on its order back-log and sales should be strong going forward. The focus in China will now turn to additional cost saving opportunities. Finally, the majority of our major currencies are trending favourably which will further help our various markets around the world. We anticipate that Dorel Sports overall will have a better second half than last year with an increased adjusted operating profit. We are currently seeing some weakness in the mass channel which means third quarter results are likely to be lower than last year, but expect that a solid fourth quarter performance should more than compensate for this, concluded Mr. Schwartz. 28

29 Sustained growth in Dorel Home with a proven e-commerce growth model. Strategically growing Dorel Juvenile and Dorel Sports in global markets. A diverse portfolio of known, premium brands. Product development that drives growth. Established customer relationships. Annual dividend of $1.20 per share. Consistent generator of cash flow to support acquisitions. Consolidation of Chinese manufacturing facilities to reinforce supply chain and increase competitiveness. 29

30 APPENDIX 30

31 (In thousands of U.S. dollars, except per share data) 31

32 1988 Cosco Inc (DJG) 1990 Charleswood Corporation 1994 Maxi-Miliaan B.V. (Maxi-Cosi) 1998 Ameriwood Industries 2000 Safety 1 st Inc Quint B.V. (Quinny) 2003 Ampa France (Dorel Europe) 2004 Pacific Cycle 2007 IGC Australia 2008 Cannondale/SUGOI 2008 PTI Sports 2009 Baby Art 32

33 2009 Dorel Brazil 2009 Iron Horse Bicycles 2009 Gemini Bicycles (Australia) 2009 Hot Wheels, Circle Bikes (UK) 2011 Silfa Group (Chile, Peru, Bolivia, Argentina) - 70% interest 2012 Poltrade (Poland) 2012 Best Brands Group SA (Panama) and Baby Universe SAS (Colombia) 70% interest 2013 Caloi (Brazil) 70% interest (now a 100% interest) 2014 Tiny Love Ltd. (Israel) 2014 Right to sell Infanti brand in Brazilian market 2014 Juvenile business of Lerado Group (Hong Kong) 2014 Intercycles (Chile) 33

34 % 36% 24% 39% 36% 37% DOREL JUVENILE DOREL SPORTS DOREL HOME FURNISHINGS 34

35 % 9% 2% 3% 9% 3% 21% 62% 21% 60% 3% 4% US Canada Europe Other Latin America Asia 35

36 Active in sustainability on several fronts throughout all three segments. Dorel Home Products facility is FSC certified. Cornwall RTA plant recycling for 10 years. 98% of materials are recycled or sold. DJG s sustainability initiatives include zero landfill, water usage reduced by 98%; high-efficiency lighting systems. Strict policy in place to ensure sustainable business practices of suppliers. 36

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