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

Good morning. I'm Martin Schwartz, President and Chief Executive Officer of Dorel Industries. Welcome to our 2021 Annual Meeting. In light of ongoing public health concerns related to the COVID 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 this way, and I thank you for your understanding. I will act as Chairman of the meeting. With the consent of the meeting, I will ask Jeffrey Schwartz to act as Secretary of the meeting. Also with the consent of the meeting, I ask Martine Gauthier of Computershare Investor Services to act as scrutineer 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'll first conduct the official business of the meeting, after which I will discuss recent developments at Dorel. We ask shareholders to submit their questions prior to the meeting. After my remarks, I will respond to your questions. 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 will be by ballot. All other votes will be conducted by voice vote unless a ballot is requested by a registered shareholder or proxy holder. I now ask Martine Gauthier, the Scrutineer, to present her report.

Mr. Chairman, we the scrutineers from Computershare Investor Services, hereby report that they are at least 4 shareholders and no proxy holders present at this meeting, representing in person or by proxy 59,108,584 shares of subordinate voting shares and multiple voting share for a combined vote of being 84.62% of the total vote attached to our outstanding shares of Dorel Industries.

Okay. 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 the 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 10, 2020, and I direct that the minutes be taken as read and approved and that they be signed as being correct. The first item of 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, 2020, 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 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 10 nominees has received a vote of at least 93% 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 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, say, aye?

Aye.

All those against, say no. I declare the motion carried and that KPMG LLP chartered professional accountants have been duly appointed auditors of the company. I'll now say a few words about recent developments at Dorel. Before I begin, I direct you to the forward-looking statements on our website at dorel.com, which you likely saw as you clicked on the link this morning. It goes without saying that COVID-19 has dramatically changed our lives since March 2020, and we are still coping with its effects. The second year of a virtual annual meeting underscores the prolonged duration of the pandemic. As more people get vaccinated, things will start to open up, but there will likely be a new normal. Through all the challenges, Dorel has prospered. 2 of our business segments, Dorel Home and Dorel Sports, continued to do well as consumers facing lockdowns and travel bans either renovated their homes or gravitated in large numbers to cycling to stay fit, both physically and mentally. Both segments substantially increased sales and earnings. On the other hand, Dorel Juvenile was more negatively impacted. Sales in mobility categories, such as car seats and strollers, were down last year as few were traveling. In Europe, juvenile products were deemed nonessential, thus retail outlets remain closed. Nonetheless, the segment reversed first half losses to finish the year with an adjusted operating profit. Dorel had an excellent first quarter this year, exceeding our expectations and ending with a superb month of March as U.S. government stimulus checks were an added catalyst to growth in revenue. The demand for Dorel's products remain very strong. Last year's unprecedented bike demand continues. While COVID stay-at-home rules got more people out riding, we believe the heightened interest in cycling is here to stay. Dorel Home is also benefiting as consumers remain focused on home improvements. We now have several high-profile furniture brands in their portfolio, all providing higher margins. As well, Home's European division established less than 2 years ago continues to grow. And while its numbers are not yet material to the segment, the potential is certainly there. 2021 has started well for Juvenile with a first quarter operating profit versus a loss in the corresponding period a year ago. Juvenile's best ever product portfolio, coupled with their strong brands and advanced e-commerce capabilities, are expected to contribute to an improved 2021 performance. The sale of Juvenile China factory, which closed on March 31 -- okay, and we are pleased with the transition thus far. This transaction is part of the new overall strategic direction of Juvenile that includes the co-development of innovative new products with a diverse supplier base, of which the purchaser is one. This has several benefits, including enhancing product development and improving speed to market. Were it not for supply chain challenges affecting all industries globally, Dorel's revenue and profitability would be even stronger. Input costs are rising and the heightened demand for Asian imports has increased the cost of ocean containers and greatly reduced their availability. There's also a shortage of bicycle components creating long delivery lead times, particularly for our Cycling Sports Group division. Dorel's balance sheet has seen significant improvement with our increased earnings and the proceeds of the Juvenile factory sale, combining to reduce our debt-to-equity ratio to less than 2.5, and it was above 5 a year ago. Looking forward, higher input costs and supply chain issues are expected to pressure earnings for all our businesses. Dorel Sports sales remain very strong, and the second quarter is expected to be similar in earnings to last year. Dorel Home's demand also remains strong. However, year-over-year earnings are expected to be lower as higher input costs will pressure margins until needed price increases are implemented. In Juvenile, the second quarter is expected to be better than last year, although COVID is limiting sales in key markets of Europe, Chile, Peru and Canada. We believe we can overcome many of these supply chain challenges and cost increases through higher sales, cost reductions and price increases. Shareholder value enhancement remains our top priority. As you know, in February, we terminated the plan to privatize Dorel by mutual consent with our prospective partner as independent shareholders express their confidence in Dorel's future and the greater potential for Dorel as a public entity. We anticipate continued growth with our excellent brands, worldwide consumer recognition and strong customer relations. The last 14 months have been like no one has seen before. Many businesses and workforces had it very tough, and it still continues for many. Our employee teams all around the world stepped up, and through the pandemic worked very hard while having to balance time and effort to keep them and their families healthy and safe. But with their efforts, Dorel has come through the problem times stronger than before. It is a tribute to our employees worldwide that Dorel has maintained operations basically uninterrupted. Our Board's guidance and expertise has been exemplary and greatly appreciated. And in the continuing objective of enhancing corporate governance, Dorel's Board has created the new position of co-chair, with responsibilities being shared by independent members, Norman Steinberg and Maurice Tousson. We are grateful to you, our shareholders, who have clearly demonstrated their belief in Dorel. Dorel had invited shareholders to submit questions prior to the meeting.

The first one being, it appears that all of the staff that made up the Special Committee to take the company private have been retained. Has the Special Committee been dissolved? Well, actually, the Special Committee was made up with only the original or the existing independent members of the Board with none from the outside. Privatization project has been terminated and the Special Committee has been dissolved. Second question, at what point will the firm's profits be shared with all shareholders either through the reestablishment of dividends or through share purchases? The Board is looking at this on a regular basis. It is now too early to answer. We will continue to evaluate it throughout the year. 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 a favor, say aye.

Aye.

Against, say no. Well, let's hope that next year, the pandemic is behind us and we'll get to see everyone at our in-person AGM. Thank you for participating in Dorel's annual meeting. I declare the motion carried and that this meeting is terminated.