Dorel Industries Inc. (DIIB) Earnings Call Transcript & Summary

Okay. Good morning. I am Martin Schwartz, President and Chief Executive Officer of Dorel Industries. Welcome to our 2020 annual meeting. In light of the COVID-19 pandemic, we asked all shareholders to stay home and to vote by proxy prior to the meeting, which many of you have done and to participate in this meeting by audio webcast. I know Dorel shareholders appreciate why we are doing things differently this year, and I thank you for your understanding. We will now start the meeting. I will act as Chairman of the meeting. With the consent of the meeting, I'll ask Jeffrey Schwartz to act as Secretary of the meeting. Also with the consent of the meeting, I will ask Mark Thompson of Computershare Investor Services to act as Scrutineers. To report on the shareholders present in person and the number of shares represented in person or by proxy at this meeting, to compute the votes on any ballot taken at this meeting and to report thereon to me as Chairman. We will first conduct the official business of the meeting, after which, I will discuss recent developments at Dorel. There are several routine matters to be dealt with at this meeting. To expedite matters, I have arranged for certain persons to make and second the various motions. The election of directors and the vote on the motion to amend Dorel's bylaws will be by ballot. All other votes will be conducted by voice vote unless a ballot is required by a registered shareholder or proxyholder. I now ask Mark Thompson, the Scrutineer to present his report.

Mr. Chairman, we the Scrutineers hereby report that there are at least 6 proxy holders present in person and 315 shareholders that have voted by proxy, representing 61,810,722 votes or 88.07% of all votes possible.

Thank you. As the Scrutineer's report shows a quorum to be present, I declare the meeting to be regularly constituted. I direct that the report be annexed to the minutes of this meeting as a schedule. The notice calling this meeting together with the proxy form, management proxy circular, and related documents have been made available to Dorel's shareholders and mailed to the company's auditors. With the consent of the meeting, we will dispense with the reading of the notice and with the reading of the minutes of the last meeting of shareholders, held on June 20, 2019, and I direct that the minutes be taken as read and approved and that they be signed as being correct. The first item of the business is the presentation of the annual report and financial statements and the auditor's report thereon. I now present to the meeting the annual report and consolidated financial statements of the company for the fiscal year ended December 30, 2019, and the auditor's report. Copies of such documents have been made available to shareholders. The next item of business is the election of directors. I declare the meeting open for nominations and ask John Paikopoulos to present his nominations.

I nominate Martin Schwartz, Alan Schwartz, Jeff Segel, Jeffrey Schwartz, Alain Benedetti, Dian Cohen, Brad A. Johnson, Sharon Ranson, Norman M. Steinberg and Maurice Tousson as Directors of the company to hold office until the next annual meeting of shareholders or until their successors are elected or appointed.

Are there any further nominations? I declare the nominations closed. As Dorel has a majority voting policy for the election of directors, we will vote by ballot in order -- in order for the votes to be accurately compiled. I have already signed and submitted a ballot in my capacity as proxy holder as did other proxy holders. As all ballots have been submitted and tabulated, I now call upon the scrutineer to present the results of the vote on the election of directors.

Mr. Chairman, I report that each of the 10 nominees has received a vote of at least 96.52% of all votes attached to shares voted or withheld from voting.

Thank you. Based on those results, I declare that the 10 nominees have been elected as directors of the Dorel Industries, to hold office until the next annual meeting of shareholders or until their successors are elected or appointed. Dorel will issue a press release announcing the results and file a detailed report of voting results on SEDAR shortly after this meeting. The next item of business is the appointment of auditors. I ask John Paikopoulos to present his motion.

Be it resolved that KPMG LLP chartered professional accountants be and they are hereby appointed auditors of the company to hold office until the next annual meeting of shareholders at such remuneration as may be fixed by the directors and the directors be and they are hereby authorized to fix such remuneration.

I ask Ed Wyse to second the motion?

I second the motion.

All those in favor, please say, aye. All those against, say, no.

Aye.

I declare the motion carried and that KPMG LLP chartered professional accountants have been duly appointed auditors of the company. The next item on the agenda is a motion to amend Dorel's bylaws. I ask John Paikopoulos to present his motion.

Whereas Section 23 of bylaw number 2015-1 of the company provides that a quorum of shareholders is present at a shareholders meeting if at the opening of the meeting, regardless of the actual number of persons physically present, 1 or more holders representing not less than 10% of the shares that carry the right to vote at the meeting are present in person or represented by proxy. And whereas on March 11, 2020, the Board of Directors of the company adopted a resolution amending Section 23 of Bylaw number 2015-1 by replacing the word "one" and the figure 10% in the first paragraph thereof, by the word "two" and the figure 25%, respectively, so that the first paragraph of Section 23 of Bylaw number 2015-1 as so amended reads as follows: Shareholders' meetings, a quorum of shareholders is present at a shareholders meeting if at the opening of the meeting, regardless of the actual number of persons physically present, 2 or more holders representing not less than 25% of the shares that carry the right to vote at the meeting are present in person or represented by proxy and whereas pursuant to Section 113 of the Business Corporations Act, Québec, the foregoing amendment is effective from the date on which it is ratified by the shareholders of the company by ordinary resolution. It is hereby resolved that the foregoing amendment to Section 23 of bylaw number 2015-1 of the company be and it is hereby ratified.

I ask Ed Wyse to second the motion.

I second the motion.

We will vote by ballot on the motion. Once again, I have signed and submitted a ballot in my capacity as proxy holder, as did other proxy holders. As all ballots have been submitted and tabulated, I now call upon Mark Thompson, the Scrutineer to present the results of the motion to amend Dorel's bylaws.

Mr. Chairman, we report that 60,780,340 votes were cast for the motion, representing 99.48% of all votes cast. And that 319,159 votes were cast against the motion, representing 0.52% of all votes cast.

Thank you. I declare the motion adopted. I'll now say a few words about recent developments at Dorel. Before I begin, I direct you to the forward-looking statement on our website at dorel.com, as you clicked on the link to this meeting. As COVID-19 took hold in mid-March, we quickly made changes to ensure our employees' health and safety. Looking back briefly to 2019, the U.S. imposed tariffs had a serious impact on Dorel's performance as process of implementing them was disruptive, costly and resulted in exceptionally high inventory levels. I'm pleased to say this is now behind us. 2020 started off well. Dorel Sports was performing well and Dorel Home was better. The issue was Dorel Juvenile Europe. A plan has been developed to address this from a cost basis with restructuring as well as new products and an aggressive go-to-market strategy. Things were improving nicely through February. However, these gains were lost as the pandemic took hold in March. We have been quite fortunate as 2 of our 3 businesses are doing better than average. Dorel Sports and Dorel Home have continued to make gains. With almost everyone forced to stay home, sales of bikes and home furnishings began increasing in late March, a trend that has continued through the second quarter. Several factors have been pushing bike sales. Gyms remain closed in many areas. Vacation travel seems out of question this summer. Bicycles have become a way to exercise as well as a mode of transportation to avoid public transit. And cities worldwide are expanding their cycling infrastructure. People just want to get out for exercise and to enjoy the better weather. Many U.S. independent bicycle dealers have reopened and those selling online and offering curbside pickup have prospered. In Europe, sales are also up as stores gradually reopened. There has been less traffic, but better conversion as consumers are buying, not just looking. Overall demand, particularly of opening price point bikes has been strong and even previously slow-moving inventory at our Pacific Cycle division has almost been depleted. The challenge has been supplied for all our divisions. The pandemic forced the closure of factories in Asia, which disrupted the supply chain through February and early March, a void we have been feeling in recent weeks. This should ease going into Q3. As opposed to the end of last year when inventory was too high, it is now at an all-time low. Dorel Home also suffered from extremely high inventory levels last year. That situation and other operational issues at Dorel Home have been mostly resolved with logistics and warehousing costs down substantially. April and May sales of value price furniture have been very solid, particularly with e-commerce accounts. Despite some out-of-stock issues, sales are expected to remain strong through the end of the second quarter. Dorel Juvenile second quarter started poorly, but we feel the worst is behind us. As many more people are now getting out, demand for car seats and strollers is increasing. The pace of the rebound has been fastest in the U.S. as more stores started reopening and government stimulus checks increased disposable income. The plan developed to improve Juvenile is very viable, and we are staying the course. Overall, we are experiencing a good quarter, but we must remain cautious for the second half of this year. COVID-19 is certainly not over. Unemployment is high, and there are just too many unknowns to make any type of prediction. Investors have asked where Dorel is headed. It has -- at times been suggested that we divest 1 or more of our 3 businesses. However, this is not something we are considering at this point. We are very conscious of the need to enhance shareholder value. We have made changes to improve our 3 businesses and are constantly seeking to make them better. There is significant value in our excellent products and our respected brands as has been evidenced in the recent months. Our focus is to keep our balance sheet as strong as possible. Debt reduction is a priority and in this regard, we have significantly lowered inventory since 2019 peak levels. The challenge is having sufficient stock on hand to serve our customers, but not over ordering. Our teams are dedicated to make the best decisions to ensure the appropriate inventory levels. We are also managing cash flow, carefully watching expenses everywhere. And as of March 31, Dorel is compliant with all financial covenants. On behalf of senior management, my sincere appreciation to our employees worldwide, who have adjusted to different working conditions while juggling their home and family lives. I would also like to thank our many suppliers who have supported us through these difficult times. And sincere thanks as well to our Board for their support and to you, our shareholders. We had asked shareholders to submit any questions that they had. We've received 1 question about diversification of possibly 1 of the units, which I answered. Other than that, there has been no questions submitted. I will now ask John Paikopoulos to present his motion to terminate the meeting.

I move the meeting be terminated.

I ask Ed Wyse to second the motion.

I second the motion.

All those in favor, say aye.

Aye.

All against, say, no. I declare the motion carried and that this meeting is terminated. Thank you for participating in Dorel's annual meeting.