First Quarter ended March 31, 2020 · 2020-05-14 · 4 First Quarters ended March 31 (in thousands...

First Quarter ended March 31, 2020

May 2020

1

Overview

3

First Quarters ended March 31

(in thousands of US $, other than EPS) 2020 2019

Revenue $ 580,755 $ 625,560

Net loss $ (57,821) $ (8,273)

Adjusted net (loss) income1 $ (13,605) $ 5,791

EPS (diluted) $ (1.78) $ (0.26)

Adjusted EPS (diluted)1 $ (0.42) $ 0.18(1) This is a non-GAAP financial measure. Please refer to the “Non-GAAP financial measures” section at the

end of this presentation.

4


(in thousands of US $) 2020 2019

Revenue $ 188,188 $ 184,544

Gross profit $ 35,821 $ 39,259

Operating (loss) profit $ (611) $ 4,501

Adjusted operating (loss) profit1 $ (528) $ 4,501

(1) This is a non-GAAP financial measure. Please refer to the “Non-GAAP financial measures” section at theend of this presentation.

Q1 Highlights

5

Fourth consecutive quarter of revenue growth to $188.2 million, up$3.6 million, or 2.0%. Sales improvements were at Cycling Sports Group("CSG") and Pacific Cycle ("PCG"), partially offset by weakness at Caloi. PCGPOS accelerated starting mid-March as demand for bikes spiked amid thepandemic lockdowns and ahead of the Easter holiday period.

Operating loss was $0.6 million vs. operating profit of $4.5 million last year.Coronavirus reduced operating profit by over $6.0 million through acombination of reduced sales in the second half of March due tolockdowns, unfavourable FX due to the strength of the US dollar and anincreased impairment loss on trade accounts receivable considering theeconomic impact of the COVID-19 pandemic.

COVID-19 Impact

6

Many bicycle factories in Asia were forced to close for 4 - 6 weeks,reducing supply.

Though demand remained strong, there were some constraints in theability to realize sales as many countries locked down retail operations.

Some of the larger sporting goods outlets closed although e-commercesales made up for the lack of brick and mortar sales.

By the end of April, many dealers that had been closed in Northern Europehad reopened while most of the dealers in the Southern countriesremained closed.

Outlook

7

Q2 sales expected to remain strong where consumers can access bikes,including mass retailers and e-commerce. Through April, PCG customerPOS has increased significantly versus prior year. CSG’s North Americanbusiness is expected to deliver sales growth while European revenues areexpected to decline due to ongoing lockdowns across Southern Europe.Caloi sales likely to decline as many of its key customers are expected toremain closed through the quarter.

While short-term supply will be an issue due to high demand, and storeclosures will affect distribution, a return to profitability is expected in Q2.

Recent Cannondale Introductions

8

Habit NEO

Canvas Neo

Recent Pacific Cycle Introductions

9

Schwinn Koen and Elm

CAT Dump Truck

Dorel Sports – 3 Divisions

10

1) Cycling Sports Group (CSG)

• IBD division.

• Premium Brands.

• Innovation – continuing focus.


11

2) Pacific Cycle

• Mass merchants/sporting goods channel.

• Full service provider – bikes and parts & accessories.

• Brand building has enhanced Schwinn/Mongooseawareness.

• Electric ride-on toys.


12

3) Caloi

• Largest bicycle brand in Latin America and leader in Brazilian market.

• Portfolio includes full range of bicycles, from high-performance 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.

13



Revenue $ 197,412 $ 210,764

Gross profit $ 24,500 $ 29,641

Operating profit $ 10,290 $ 14,453

Q1 Highlights

14

Revenue was $197.4 million, down $13.4 million, or 6.3%, from$210.8 million last year.

E-commerce sales rose slightly, representing 64% of segment's total grosssales. Brick & mortar sales declined at most major retailers.

Operating profit was $10.3 million, a decrease of $4.2 million, or 28.8%,from $14.5 million. All divisions were affected by the economic andsupply chain disruptions caused by the Coronavirus and ended thequarter below plan.

Inventories are now well under control, having dropped from a 2019 mid-year high of $226.4 million to $155.3 million by the end of Q1.

COVID-19 Impact

15

COVID-19 created a shift in product sales and consumer buying habits.With most at home in lockdown, online shopping grew. Home officefurniture and entertainment units did particularly well.

Beginning in February, Chinese suppliers were unable to deliver due toplant shutdowns, resulting in decreased sales for many of the segment’scustomers, a situation which lasted through the first half of March.

All three RTA plants reduced operating capacities due to lockdowns orstaff shortages.

Shipments began to recover in mid-March as Chinese suppliers cameback online and domestic sales started to rebound.

Outlook

16

Due to increased online sales, April shipments have been very strongduring the prolonged stay-at-home period. This trend is expected tocontinue at most Dorel Home divisions due to an even bigger shift toonline shopping platforms and government support programs.

Increased demand expected to create some out-of-stock challengesthrough May, but inventory levels should improve in June.

Improved warehouse costs and delivery programs are expected tofurther reduce operating costs and improve Q2 earnings.

18


Revenue $ 195,155 $ 230,252

Gross profit $ 46,212 $ 61,133

Adjusted gross profit1 $ 46,212 $ 61,564

Operating loss $ (46,209) $ (7,108)

Adjusted operating (loss) profit1 $ (1,859) $ 7,289



Q1 Highlights

19

Revenue was $195.2 million, down $35.1 million, or 15.2%, compared to$230.3 million. Excluding varying FX rates year-over-year, organic revenue1

declined by approximately 14.0%.

Europe was most affected with retail store closures in almost all markets.Europe was on plan through February, as new products introduced in thefourth quarter last year were performing well, however these gains werelost due to the pandemic. U.S. sales which were good until mid-March,were also below expectations due to the overall market downturn. In Chileand Peru all Company owned retail stores were closed in March.

Operating loss was $46.2 million, compared to $7.1 million a year ago.Adjusted operating loss, excluding impairment loss on goodwill andrestructuring costs, was $1.9 million, compared to an operating profit of$7.3 million in 2019. The surging US dollar created FX losses ofapproximately $3.0 million.(1) This is a non-GAAP financial measure. Please refer to the “Non-GAAP financial measures” section at the

end of this presentation.

COVID-19 Impact

20

Starting February, Dorel Juvenile’s China-based factories were subject toan extended closure period, resulting in lost sales, but like China-basedsuppliers, were mostly back in operation mid-March.

North America saw lower sales of car seats and strollers. We believethese purchases have been deferred, particularly car seats. Homeproducts, e.g. health and safety aids, walkers, gates and highchairs, soldwell.

In Europe and South America, the sales impact was more substantial assmaller stores, including Dorel-owned, were forced to close. While onlinesales increased, sales in Europe were limited as baby stores were deemednon-essential and juvenile products were also deemed non-essential incertain countries, curtailing deliveries.

Outlook

21

April sales were substantially lower as limitations on consumers and storeopenings remained in place. As lockdowns ease in various jurisdictions,we are seeing increased sales and deferred sales of car seats picking up.

As restrictions and lockdowns are eased in May and beyond, we believeDorel Juvenile will be in a good position relative to our competition in allour markets.

The expected gradual re-opening of stores will result in Q2 weakness.Significant second half improvement is expected, based on the full re-opening of retail stores, the launch of new products and a further catch-up of deferred purchases.

Dorel Juvenile USA - Innovation

22

Maxi-Cosi Pria 3:1

• 3-in-1 convertible car seat built to grow with your child, featuring easy conversion between rear-facing, forward-facing and booster modes while accommodating children from 4 – 100 lbs.

• Premium fabrics and cushions that keep kids comfortable and are both washer and dryer safe for quicker cleaning.

• GCell foam technology for added side impact protection.

Dorel Juvenile Europe - Innovation

23

• 360° rotative car seat to make the child installation easier.

• Rearward facing travelling up to 105 cm (approx. 4 years) for enhanced protection of head and neck.

• i-Size safety standards provide additional safety for head and neck.

• G-Cell technology provides hexagonal shaped high performance cell structure resulting in leading edge Side Impact Safety.

Maxi-Cosi Mica

Dorel Juvenile Europe - Innovation

24

• Winner of the coveted innovation award for the Maxi-Cosi Coral at the world’s largest juvenile products exhibition in Cologne, September 2019.

• Revolutionary infant carrier baby car seat solves the inconvenience of managing bulky seats.

• Detachable soft carrier weighing only 1.7kg.

• Sets a new standard for lightness and convenience.

Maxi-Cosi Coral

Other

25

Balance sheet

As the realities of COVID-19 continue to affect companies worldwide, our focus, in addition to

protecting profitability, continues to be strengthening our balance sheet and ensuring we

preserve and improve liquidity. Q1 inventory levels were reduced by $64.8 million from the

December 30, 2019 balance of $633.6 million, with an additional reduction of approximately

$68 million in April 2020.

Dorel amended its senior unsecured notes agreement, syndicated revolving credit facility and

term loan agreement to facilitate compliance with its financial covenants in light of the

impact of COVID-19. As at Q1 2020, Dorel was compliant with all its financial covenants.

Finance expenses

Finance expenses increased by $5.0 million to $15.3 million during Q1 compared to

$10.3 million in 2019. The increase is mainly explained by a loss of $3.7 million recorded

during Q1 2020 in connection with the modification of the senior unsecured notes

agreement. The increase in finance expenses is also explained by an increase of interest on

long-term debt of $2.3 million due to higher average long-term debt balances and higher

average effective interest rates compared to last year.

Other

26

Impairment Tests

With the adverse impact of the COVID-19 pandemic on global economies

and financial markets, Dorel was required to perform impairment tests for

some of its business units including Dorel Juvenile – Europe, Dorel Sports –

Mass markets and Dorel Home. As a result of these impairment tests, Dorel

Juvenile – Europe recorded an impairment loss on goodwill of $43.1 million

in Q1 as it revised its assumptions on projected earnings and cash flows, as

well as its assumptions on discount rates applied to its forecasted cash flows.

Other

27

Income taxesFor Q1 2020, Dorel’s effective tax rate was (6.6)% compared to (59.5)% forthe same period last year. Excluding income taxes on impairment loss ongoodwill and restructuring costs, Dorel’s first quarter adjusted tax rate1

was (38.7)% in 2020 compared with 37.1% in 2019. The main causes of thevariation in the reported tax rates year-over-year were largely due to thenon-deductible impairment loss recorded on goodwill, the non-recognitionof tax benefits related to tax losses and temporary differences, thechanges in the jurisdictions in which Dorel generated its income andmanagement’s reassessment of the recoverability of deferred tax assets inlight of the potential impact of the COVID-19 pandemic on Dorel’sbusiness.


Outlook

28

Considering the worldwide situation with the current COVID-19pandemic, we remain optimistic for the second quarter.(Please see individual segment outlooks as well).

Non-GAAP Financial Measures

29

Dorel is presenting in this presentation certain non-GAAP financial measures, as described below.These non-GAAP financial measures do not have a standardized meaning prescribed byInternational Financial Reporting Standards (IFRS) and therefore are unlikely to be comparable tosimilar measures presented by other issuers. These non-GAAP financial measures should not beconsidered in isolation or as a substitute for a measure prepared in accordance with IFRS.

Contained within this presentation are reconciliations of the non-GAAP financial measures to themost directly comparable financial measures calculated in accordance with IFRS.

The terms and the definitions of the non-GAAP financial measures contained in this presentationare as follows:

Organic revenue

Organic revenue: Revenue growth compared to the previous period, excluding the impact ofvarying foreign exchange rates

Dorel believes that these measures provide investors with a better comparability of its revenuetrends by providing revenue growth on a consistent basis between the periods presented.


30

Other financial information prepared under IFRS adjusted to exclude impairment loss on goodwill andrestructuring costs

Adjusted cost of sales: Cost of sales excluding restructuring costs

Adjusted gross profit: Gross profit excluding restructuring costs

Adjusted operating profit: Operating profit excluding impairment loss on goodwill and restructuring costs

Adjusted income before income taxes:

Income before income taxes excluding impairment loss on goodwill and restructuring

costs

Adjusted income taxes expense: Income taxes expense excluding the tax impact relating to impairment loss on

goodwill and restructuring costs

Adjusted tax rate: Tax rate excluding the tax impact relating to impairment loss on goodwill and

restructuring costs

Adjusted net income: Net income excluding impairment loss on goodwill and restructuring costs, net of

taxes

Adjusted earnings per basic anddiluted share:

Earnings per basic and diluted share calculated on the basis of adjusted net income

Dorel believes that the adjusted financial information provides investors with additional information tomeasure its financial performance by excluding certain items that the Company believes do not reflect its corebusiness performance and provides better comparability between the periods presented. Accordingly, Dorelbelieves that the adjusted financial information will assist investors in analyzing the Company’s financial resultsand performance. The adjusted financial information is also used by management to assess the Company’sfinancial performance and to make operating and strategic decisions.


31

Reconciliation of non-GAAP financial measures

Organic revenue:


32

Other financial information prepared under IFRS adjusted to exclude impairment loss on goodwill and restructuring costs:

Dorel Consolidated


33

Dorel Sports


34

Dorel Juvenile

Forward-Looking Statement

35

Certain statements included in this presentation may constitute “forward-looking statements” within themeaning of applicable Canadian securities legislation. Except as may be required by Canadian securities laws,Dorel does not undertake any obligation to update or revise any forward-looking statements, whether as aresult of new information, future events or otherwise. Forward-looking statements, by their very nature, aresubject to numerous risks and uncertainties, including statements regarding the impact of the COVID-19pandemic on Dorel’s business, financial position and operations, and are based on several assumptions whichgive rise to the possibility that actual results could differ materially from Dorel’s expectations expressed in orimplied by such forward-looking statements and that the objectives, plans, strategic priorities and businessoutlook may not be achieved. As a result, Dorel cannot guarantee that any forward-looking statement willmaterialize, or if any of them do, what benefits Dorel will derive from them. Forward-looking statements areprovided in this presentation for the purpose of giving information about management’s current expectationsand plans and allowing investors and others to get a better understanding of Dorel’s operating environment.However, readers are cautioned that it may not be appropriate to use such forward-looking statements forany other purpose.


36

Forward-looking statements made in this presentation are based on a number of assumptions that Dorelbelieved were reasonable on the day it made the forward-looking statements. Factors that could cause actualresults to differ materially from Dorel’s expectations expressed in or implied by the forward-looking statementsinclude:

• the ability to continue as a going concern is dependent on Dorel’s complying with its financial covenantsunder its senior unsecured notes, revolving bank loans and term loan agreements;

• general economic conditions;

• changes in product costs and supply channels, including disruption of Dorel’s supply chain resulting fromthe COVID-19 pandemic;

• foreign currency fluctuations, including high levels of volatility in foreign currencies with respect to the USdollar reflecting uncertainties related to the COVID-19 pandemic;

• 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;

• outbreak of public health crises, such as the current COVID-19 pandemic, that could adversely affectglobal economies and financial markets, resulting in an economic downturn which could be for aprolonged period of time and have a material adverse effect on the demand for Dorel’s products and on itsbusiness, financial condition and results of operations;


37

• continued access to capital resources, including compliance by Dorel with financial covenants under itssenior unsecured notes, revolving bank loans and term loan agreements, and the related costs ofborrowing, all of which may be adversely impacted by the COVID-19 pandemic;

• failures related to information technology systems;

• changes in assumptions in the valuation of goodwill and other intangible assets and future decline inmarket capitalization; and

• there being no certainty that Dorel will declare any dividend in the future.

These and other risk factors that could cause actual results to differ materially from expectations expressed inor implied by the forward-looking statements are discussed in Dorel’s annual MD&A and Annual InformationForm filed with the applicable Canadian securities regulatory authorities. The risk factors set out in thepreviously-mentioned documents are expressly incorporated by reference herein in their entirety.

Dorel cautions readers that the risks described above are not the only ones that could impact it. Additionalrisks and uncertainties not currently known to Dorel or that Dorel currently deems to be immaterial may alsohave a material adverse effect on Dorel’s business, financial condition or results of operations. Given theserisks and uncertainties, investors should not place undue reliance on forward-looking statements as aprediction of actual results.

Note: All figures are in US dollars.

38

APPENDIX

Financial Performance 5 Years Reported

39

(1) The Company has initially applied IFRS 15 and IFRS 9 as at December 31, 2017. Under the transition methods chosen, comparative information is not restated.

(2) The Company has initially applied IFRS 16 as at December 31, 2018. Under the transition methods chosen, comparative information is not restated.

(In thousands of US dollars, except per share data)

Financial Performance 5 Years Adjusted*

40

(In thousands of US dollars, except per share data)

* The Company is presenting adjusted financial information in this 5-year financial performance table, excluding impairment losses on goodwill, intangible assets and property, plantand equipment, restructuring and other costs, remeasurement of forward purchase agreement liabilities and loss on early extinguishment of long-term debt, as it believes thisprovides a more meaningful comparison of its core business performance between the years presented. For additional information regarding the specific items and non-GAAPfinancial measures, please refer to the section "operating results: non-GAAP financial measures" in the Management Discussion and Analysis for the quarters and the years endedDecember 30, 2019, 2018, 2017, 2016 and 2015.

(1) The Company has initially applied IFRS 15 and IFRS 9 as at December 31, 2017. Under the transition methods chosen, comparative information is not restated.(2) The Company has initially applied IFRS 16 as at December 31, 2018. Under the transition method chosen, comparative information is not restated.

Growth Through Acquisitions

41

• 1988 Cosco Inc (DJG)

• 1990 Charleswood Corporation

• 1994 Maxi-Miliaan B.V. (Maxi-Cosi)

• 1998 Ameriwood Industries

• 2000 Safety 1st Inc.

• 2001 Quint B.V. (Quinny)

• 2003 Ampa France (Dorel Europe)

• 2004 Pacific Cycle

• 2007 IGC Australia

• 2008 Cannondale/SUGOI (SUGOI was divested of in Q2 2018)

• 2008 PTI Sports

• 2009 Baby Art

• 2009 Dorel Brazil

• 2009 Iron Horse Bicycles

Growth Through Acquisitions

42

• 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)

• 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)

• 2018 Alphason (UK)

• 2019 Canbest (Canada)

Revenue by Segment

43

2019 2018

33.5%

34.5%

32%35%

34%

31%

DOREL JUVENILE DOREL SPORTS DOREL HOME

Geographical Distribution of Revenue

44

2019 2018

63%

3%

20%

2%10% 2%

61%

4%

21%

2%10%

2%

US Canada Europe Other Latin America Asia

Sustainability Philosophy

45

• Active in sustainability on several fronts throughout all three segments.

• Dorel Home Products facility is FSC certified.

• Cornwall RTA plant recycling for 10 years.

• DJG’s 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.

First Quarter ended March 31, 2020 · 2020-05-14 · 4 First Quarters ended March 31 (in thousands...

Documents

Transcript of First Quarter ended March 31, 2020 · 2020-05-14 · 4 First Quarters ended March 31 (in thousands...