Check against delivery Mr. Martin Schwartz President and Chief Executive Officer Dorel Industries Inc. 2012 Annual Meeting of Shareholders Montreal May 24, 2012 1
Welcome Jeffrey and I will now provide an overview of the past year and look ahead to what we expect will drive Dorel s progress through the rest of 2012. I will also highlight a number of products that underline the innovation we focus on each day. First, a couple of notes, kindly refer to the forward looking statement on the screens and a reminder that all figures mentioned this morning are in U.S. dollars. I am proud to say that Dorel is marking an important milestone this year, as it was 50 years ago that my late father, Leo, started making with crib mattress covers in the basement of his home. That evolved into Dorel, a thriving Canadian juvenile products company. In 1969 Alan, Jeff and I started Ridgewood as a manufacturer of wire products which later became a ready-to-assemble furniture business. The two operations were merged in 1987 when Dorel Industries went public, and that s why I m still giving these speeches 25 years later! The Dorel of today is vastly different.through a series of acquisitions which began in 1988 and through organic growth we have built three strong business segments and have grown sales to $2.4 billion with 5000 employees worldwide. Our scope is impressive, with sales in more than 100 countries and physical operations in 22. 50 consecutive years of profit in business is an achievement. 2011 was a mixed year for Dorel, and ended on an improved note. Total revenue for the year was $2.4 billion versus $2.3 billion last year. Net income was $105 million this past year compared to $128 million a year ago. It was a difficult 2011 at Dorel Juvenile Group, our U.S. juvenile operations. A combination of external and internal issues presented challenges we have been actively addressing. There was meaningful progress in our juvenile segment acquisition program in emerging markets, further positioning Dorel as a global leader in the juvenile industry. We purchased a 70% interest in a group operating the popular Infanti brand in Chile, 2
Bolivia, Peru and Argentina extending our reach into South America, a market with great potential. The transaction, which has already been accretive to earnings, included the Baby Infanti chain of 52 specialty shops. In January we bought our long-time distributor in Poland and have created another new juvenile division, Dorel Polska. This will allow the Polish team to extend both brand and product category penetration into the key market of Eastern Europe. Poltrade has a leading position in the Polish car seat safety market and they also operate three stores. Our Recreational/Leisure segment performed very well and this business remains solid in both the independent bicycle dealer and mass market channels. Operating profit at Dorel Home Furnishings was down year-over-year, but it continued to be a solid generator of cash for the Company. I will provide more detail on our operations shortly, but first, as a major consumer products company, we always strive to make a difference in the products we develop and I would like to describe a few of them now. We re proud to introduce the Maxi-Cosi Prezi infant car seat. This follows extensive research, testing and design and it s our first car seat with G-cell HX Superior Side Impact Protection to shield the child where it s needed most, around the head and neck. A rebound bar also controls reaction motion in an accident. This is a first for the child restraint industry. Installation is simple with color coded-instructions and features like the Quick Fit, easy-out harness. The Prezi is designed for tiny infants weighing as little as 4 pounds and will be at specialty retailers in the next few months. The Quinny Moodd is the most user-friendly and complete stroller around. It is easy to handle even when holding a child. With a push of a button it unfolds automatically and adapts to your needs. The stroller can be used from birth, using only the seat or combining it with the new Foldable Carrycot or a car seat. Moodd is available in eight striking colours. 3
The Cannondale SuperSix EVO has been named the Best Bike of the World by a respected German magazine, as the most efficient road bike ever created. At just 695 grams, the EVO has the best recorded stiffness-to-weight ratio. The two-zone speed save micro suspension system is designed to help the EVO roll, corner, and accelerate faster, while the bike s strength comes from BallisTec Carbon construction and superior carbon engineering. The price point is $9900. This GT Zaskar 100 has undergone numerous improvements to its suspension design, carbon layup, and fabrication techniques, making it lighter and stiffer. It features both hardtails no rear suspension--and 100mm travel frames in 26 and 29 variants, and therefore the model is just as capable off course as it is on. Prices in this line-up range from $4400 - $5500. With an integrated bottle opener in the frame, the Schwinn Delmar puts a new spin on the classic cruiser. The simple single-speed drivetrain with coaster brake lets you relax and enjoy while the swept-back cruiser handlebar creates a comfortable, upright riding position. Some highlights now of our operations and where we are heading. Starting with Juvenile, last year the industry had a variety of issues to deal with including a reluctant consumer, declining birth rates and volatile economies in various geographies. And we faced some internal challenges at our U.S. business which we have been actively addressing. We are pleased with the progress being made at DJG. Sales levels grew in the first quarter and there has been improvement in a number of area where margins had been under pressure. These improvements are continuing. Europe faced some of the same challenges last year, but the drop in earnings was less acute. Despite the difficult economy in many European countries, we have solid operations there and they have performed quite well under the circumstances. We have remained committed to product innovation with the emphasis, as always, on enhancing safety. As the global leader in car seats, our mission is to protect the lives of children. A year ago at this time I talked about the start of research on impact absorbing foam used in F1 and Indy Racing League cockpit crash protection. DJG partnered with 4
a major developer of this technology to determine how best to utilize this material in our car seats. We have made definite progress. This work has led to the introduction of the Prezi incorporating our newly developed G- cell technology, which I showed you a few minutes ago. G-cell s hexagonal-shaped foam reinforces our tried and true Air Protect side impact protection technology, creating full body side impact protection. The patented rebounding foam technology with hexagonal shapes mitigates impact energy, while Air Protect dispels remaining crash forces. It is the most advanced technology in child restraint systems. We want Dorel s car seats to make a difference. That is why we ve invested heavily in the Dorel Technical Centre in Indiana and two similar facilities in Europe. We are heartened when approached by parents who tell us that, indeed, our seats have made that difference. Later this year we will be incorporating G-Cell in combination with Air Protect technology into new innovative convertible and booster car seat products. This will set the stage for some of the most advanced car seat designs on the market to be coming out of our investments into product design and technology. It s these industry-leading technologies which sets Dorel apart in the design and innovation for protection of our children. In Europe, much of Q1 benefitted from new product launches such as the Moodd and Yezz, two new highly popular strollers. The Quinny Yezz won the coveted Red Dot award for innovative design -- the highest distinction in the design competition for the best work in a category. The Yezz is a versatile, lightweight stroller weighing only 5 kilograms and will be available this fall in North America in a four wheel version. It can easily be folded into a compact package that you can carry on your back which makes picking up your youngster at daycare child s play. We continue to grow our juvenile business through acquisitions. Our latest involvement in South America is going very well. We are very pleased with the November 2011 acquisition in Chile and with our new partners there. We see great things going forward in that region. 5
Chile is in expansion mode, unlike other countries elsewhere. The 52 stores that were included in the deal are doing very well with same store sales continuing to grow. The plan is to open additional stores through the year. Our involvement at the retail level may be new, but we have partnered with an excellent group which has maintained sustained growth for 10 years and which clearly understands the culture and consumer needs in that part of the world. 2011 was a record year in Recreational Leisure, with revenue up 11% and operating profit up 17%. A fair question being asked is can this momentum be sustained? My answer is definitely yes. Just one reason is the growing funding for bicycle projects in cities around the world. Right here in Montreal, the city will spend $10 million this year and next to improve its cycling infrastructure. Millions more are being dedicated to cycling in cities around the world. Accomplishments in the segment have been driven by our strong brands coupled with the passion and innovation for our products -- something our employees in Recreational/Leisure are deeply committed to. Innovation is the lifeblood of our bicycle business. The proof of this is the growing recognition from dealers, consumers and from awards. The Cannondale Super Six Evo Ultimate is an excellent example. The distinction it received is an impressive accomplishment considering that it was based on ten years of reviews of over 2000 bikes, and it is the first time this magazine has handed out such an award. Sales of Cannondale and GT have grown steadily in Europe and Japan. Most of Cycling Sport s Group s growth our premium brands was outside North America last year and comprised over 50% of revenue. Overall, Cannondale dealers are selling more of our bikes than ever before. This summer CSG will begin selling Cannondale and GT direct in China in the premium segment of the Chinese bicycle market through our Asian division. The market there is extensive. 6
Schwinn profited from a considerable and strategic marketing spend last year. A new digital campaign, utilizing strictly social media, is now underway with its second phase, as seen on the screens, starting today. Despite an uncertain retail environment, Schwinn has made gains as the brand is kept in the forefront. Just one example is the prominence it got on a pre-christmas Rachael Ray Show. Our Home Furnishings segment encompasses several businesses from ready-toassemble furniture to popular futons, as well as many imported furniture items. Last year it accounted for just over $522 million in revenue, up from $508 million the previous year. While there has been pressure on audio visual and home office products as consumers migrate toward increasingly smaller PDAs, we are doing well in the segment s other furniture divisions. Home Furnishings ecommerce business is the strongest in the Company. It has grown substantially since 2007, multiplying tenfold from $6.3 million to $65 million this year. The segment foresees continued progress in dot com as it attracts additional on-line retailers. Another great thing about this business is that it is not capital intensive and is consistently a strong cash generator. An objective at Dorel is to do our part to protect the environment and to act as a good corporate citizen. It has been suggested that we adopt the Global Reporting Initiative or GRI framework for sustainability reporting. GRI targets primarily mining and extractive industries and is not widely supported at this time. While we are not currently prepared to undertake such a huge time-intensive commitment, be assured that our sustainability initiatives span all divisions. Standard practices include the recycling of packaging materials, the use of energy management systems for lighting, among others. Obviously as a bicycle company, we encourage employees to bike to and from work. A few other specific examples. Dorel Home Products has formal periodic reviews of its policies to chart progress in reducing its carbon footprint; their plant precludes the use of chemicals or the possibility of water contamination in the processing function; and the facility is FSC certified and audited by QMI. 7
Our ready-to-assemble furniture plant in Cornwall has been recycling for the past ten years. Over 98% of all materials, including plastic, steel, wood chips and wood dust, corrugated and paper are either recycled or sold. Nothing goes to a land fill. Every week 100,000 kilograms of dust and wood chips are recycled and every month 4,000 kilos of cardboard are recycled. DJG has made significant investments in order to take a proactive position on sustainability. The one million square foot Columbus manufacturing plant is a zero landfill facility. Water usage for the many injection molding machines has been reduced by 98% and the use of chemicals in the water supply was eliminated years ago. As well, high-efficiency lighting and motion sensors have been installed in all manufacturing and distribution centres. Our commitment to sustainability represents an important component of our corporate strategy and our efforts in this area are regularly reviewed. At this point I will ask Jeffrey to review some key financials and provide an outlook. We d like you to join in on our 50 th anniversary celebrations by sharing a piece of cake with us. 8