Third Quarter ended September 30, 2019 · 4 (in thousands) 2019 2018* Total revenue $ 250,277 $...

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Third Quarter ended September 30, 2019

Overview

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TSX: DII.B DII.A

• 3 business segments

• Dorel Home (2018 revenue - $804 million)

• Dorel Juvenile (2018 revenue - $932 million)

• Dorel Sports (2018 revenue - $883 million)

• $2.6 billion in sales annually

• Approximately 9,200 employees

• Sales to 100+ countries

• Facilities located in 25 countries

Overview

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(in thousands, other than EPS) 2019 2018*

Total revenue $ 685,669 $ 670,437

Net income (loss) $ (4,337) $ 9,594

Adjusted net income1 $ 2,355 $ 10,988

EPS (diluted) $ (0.13) $ 0.29

Adjusted EPS (diluted)1 $ 0.07 $ 0.34

Third Quarters ended September 30

* The Company has initially applied IFRS 16 as at December 31, 2018. Under the transition methodchosen, comparative information is not restated.

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

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(in thousands) 2019 2018*

Total revenue $ 250,277 $ 219,120

Gross profit $ 46,895 $ 46,144

Adjusted gross profit1 $ 46,769 $ 46,244

Operating profit $ 5,957 $ 6,993

Adjusted operating profit1 $ 5,601 $ 7,549


* The Company has initially applied IFRS 16 as at December 31, 2018. Under the transitionmethod chosen, comparative information is not restated.

Q3 Highlights

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Revenue increased $31.2 M, or 14.2%, to $250.3 M, with revenue growthacross all three divisions, driven by strong performances at the Cycling SportsGroup (CSG) resulting from continued excitement and increased sales of themodel year ’20 lineup.

Adjusted organic revenue1 increased 15.7% excluding FX fluctuations year-over-year and the impact of the divestment of the performance apparelbusiness.

Nine-month revenue increased $25.5 M, or 3.9%, to $675.9 M.

Operating profit was $6.0 M vs. $7.0 M a year ago.

Adjusted operating profit was $5.6 M vs $7.5 M last year.

Margin compression at Pacific Cycle, delayed holiday shipments and relatedadditional warehouse storage were responsible for the decreased operatingprofit.

Nine-month operating profit increased to $20.6 M vs. $2.9 M in 2018.Adjusted operating profit was $20.2 M vs. $14.7 M.

Recent Cannondale Introductions

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Habit NEO

CAAD 13

Recent Pacific-Cycle Introductions

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Schwinn Koen and Elm

CAT Dump Truck

Dorel Sports – 3 Divisions

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1) Cycling Sports Group (CSG)

• IBD Division.

• Premium Brands.

• Innovation – continuing focus.


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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.


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3) Caloi

• Largest bicycle brand in LATAM 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.

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Total revenue $ 222,925 $ 229,690

Gross profit $ 56,219 $ 57,846

Operating profit (loss) $ (4,563) $ 1,038

Adjusted operating profit $ 2,592 $ 1,675


Q3 Highlights

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Revenue declined 2.9%, to $222.9 M, with organic revenue1 decreasing by 0.5%.

Dorel Juvenile USA retail sales increased over prior year at most customers, capturing marketshare from competitors.

Sales at Dorel Juvenile Brazil continued to grow double digits with Chile retail same store salesalso increasing substantially over prior year.

New product introductions in Europe are gaining traction with additional new products beingintroduced in the Q4 and early 2020 which is expected to accelerate revenue improvement.

Nine-month organic revenue increased by 1.3%, reported revenue decreased $15.8 M, or 2.3%,to $674.7 M.

Operating loss was $4.6 M vs. an operating profit of $1.0 M last year. Included in 2019 results isan impairment loss on trade receivables of $1.6 M due to a significant retail chain in the U.K.entering administration. Excluding restructuring and other costs, adjusted operating profitincreased to $2.6 M vs. $1.7 M in 2018.

Nine-month operating loss was $9.3 M vs. $18.8 M a year ago. Excluding impairment loss onintangible assets, restructuring and other costs, adjusted operating profit rose 82.9% to$16.5 M from $9.0 M in 2018.

The restructuring program in Europe is being implemented and the program is running asplanned.

Dorel Juvenile USA - Innovation

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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

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

• 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

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Total revenue $ 212,467 $ 221,627

Gross profit $ 32,376 $ 34,844

Operating profit $ 15,665 $ 19,504



Q3 Highlights

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Revenue decreased $9.2 M, or 4.1%, to $212.5 M. Prices were raised midway through Q3 to reflect the increased tariffs,

which had a negative impact on retailers’ purchasing decisions. E-commerce sales increased to 61% of total segment gross sales,

compared to 58% last year. CosmoLiving and Novogratz branded sales beat prior quarter numbers

substantially. Nine-month revenue was up by $35.5 M, or 6.0%, to $630.7 M. Gross profit was 15.2%, down 50 basis points from prior year, but an

improvement of 100 basis points from Q2 gross profit. Sales and operating profit both increased over the second quarter. Year-

over-year, operating profit declined $3.8 M, or 19.7%, to $15.7 M. Nine-month operating profit decreased $8.5 M, or 16.1%, to $44.2 M.

Other

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Taxes

During the third quarter and nine months ended September 30, 2019, the

Company’s reported effective tax rates were (130.4)% and 1,640.7% respectively

compared to 28.2% and 90.4% for the same periods in the prior year. Excluding

income taxes on restructuring and other costs, the Company’s third quarter

adjusted tax rate1 was 52.1% in 2019 compared with 24.5% in 2018. Excluding

income taxes on impairment loss on intangible assets, restructuring and other costs,

the Company’s adjusted tax rate for the nine months was 44.5% in 2019 compared

with 16.5% in 2018. Considering the significant impairment losses recorded during

the fourth quarter of 2018, the Company was unable to recognize certain tax

benefits related to tax losses and temporary differences. This resulted in an increase

in the reported effective tax rates for both periods compared to prior year. The

balance of the increase in the reported effective tax rate and in the adjusted

effective tax rate is due to changes in the jurisdictions in which the Company

generated its income. The Company expects that for the full year its annual adjusted

tax rate to be between 35% and 40%.

Other

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Finance expensesFinance expenses increased by $4.5 M to $12.8 M during the third quarter and by $11.8 M to $35.9 M year-to-date. The increases are due mainly to interest expense on lease liabilities from the adoption of IFRS 16, for which the prior year figures were not restated. In addition, the 2019 increase includes higher average borrowings and higher average market interest rates.

Outlook

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At Dorel Sports, the positive momentum in Cycling Sports Group’s IBD businessis expected to continue. This, coupled with the shift of orders at Pacific Cyclefrom Q3 to Q4, provides the confidence that the segment will deliver a solidfourth quarter in both sales and adjusted operating profit.

At Dorel Juvenile, new product introductions are beginning to have a positiveimpact and there are several key launches scheduled for Q4 and early nextyear. From an earnings perspective, Europe is still transforming itself. Therestructuring program in Europe is proceeding with most of the savings tocome in 2020. Q4 adjusted operating profit is at risk due to continuing civilunrest in Chile, which began in October and which is having a negative effecton all retail, including Dorel Juvenile’s numerous stores. This could lowerearnings in the quarter and impact the critical Christmas season in thatcountry.

Outlook

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At Dorel Home, we are expecting similar earnings for Q4 as throughout 2019.We are now seeing an easing of the pressure created by tariffs imposed in theU.S. Demand is growing again, our warehouse service levels are improving, andour inventory is being re-balanced to the right levels. We expect adjustedoperating profit to improve early in 2020.

Non-GAAP Financial Measures

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The Company is presenting in this presentation certain non-GAAP financial measures, asdescribed below. These non-GAAP financial measures do not have a standardized meaningprescribed by International Financial Reporting Standards (IFRS) and therefore are unlikely to becomparable to similar measures presented by other issuers. These non-GAAP financial measuresshould not be considered in isolation or as a substitute for a measure prepared in accordancewith IFRS.

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

Organic revenue and adjusted organic revenue

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

Adjusted organic revenue: Total revenue growth compared to the previous period, excluding the impact ofvarying foreign exchange rates and the impact of the divestment of theperformance apparel line of business (Sugoi)

The Company believes that these measures provide investors with a better comparability ofthe Company’s total revenue trends by providing total revenue growth on a consistent basisbetween the periods presented.


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Other financial information prepared under IFRS adjusted to exclude impairment loss on intangibleassets, restructuring and other costs

Adjusted cost of sales: Cost of sales excluding restructuring and other costs

Adjusted gross profit: Gross profit excluding restructuring and other costs

Adjusted operating profit: Operating profit excluding impairment loss on intangible assets, restructuring andother costs

Adjusted income before incometaxes:

Income before income taxes excluding impairment loss on intangible assets,restructuring and other costs

Adjusted income taxes expense: Income taxes expense excluding the tax impact relating to impairment loss onintangible assets, restructuring and other costs

Adjusted tax rate: Tax rate excluding the tax impact relating to impairment loss on intangible assets,restructuring and other costs

Adjusted net income: Net income excluding impairment loss on intangible assets, restructuring andother costs, net of taxes

Adjusted earnings per basic anddiluted share:

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

The Company believes that the adjusted financial information provides investors with additionalinformation to measure the Company’s financial performance by excluding certain items that theCompany believes do not reflect its core business performance and provides better comparabilitybetween the periods presented. Accordingly, the Company believes that the adjusted financialinformation will assist investors in analyzing the Company’s financial results and performance. Theadjusted financial information is also used by management to assess the Company’s financialperformance and to make operating and strategic decisions.


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Reconciliations of the non-GAAP financial measures to the most directly comparablefinancial measures calculated in accordance with IFRS are included in the MD&A forthe third quarter ended September 30, 2019.

Forward-Looking StatementExcept for historical information provided herein, this presentation may contain information andstatements 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 bestpossible evaluation of future events. The business of the Company and these forward-lookingstatements are subject to a number of risks and uncertainties that could cause actual results to differfrom expected results. Important factors which could cause such differences may include, withoutexcluding other considerations, general economic conditions; changes in product costs and supplychannels; foreign currency fluctuations; customer and credit risk, including the concentration ofrevenues with a small number of customers; costs associated with product liability; changes in incometax legislation or the interpretation or application of those rules; the continued ability to developproducts and support brand names; changes in the regulatory environment; continued access to capitalresources, including compliance with covenants, and the related costs of borrowing; failure related toinformation technology systems; changes in assumptions in the valuation of goodwill and otherintangible assets and future decline in market capitalization; and there being no certainty that Dorel’scurrent dividend policy will be maintained. A description of the above mentioned items and certainadditional risk factors are discussed in the Company’s Annual MD&A and Annual Information Form, filedwith the Canadian securities regulatory authorities. The risk factors outlined in the previouslymentioned 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 anduncertainties were to materialize. Given these risks and uncertainties, investors should not place unduereliance on forward-looking statements as a prediction of actual results.

Note: All figures are in US dollars.

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APPENDIX

Financial Performance 5 Years Reported

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

(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.

Financial Performance 5 Years Adjusted*

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(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, 2018, 2017, 2016, 2015 and 2014.

(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

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• 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

Growth Through Acquisitions

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• 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)

• 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)

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Total Revenue by Segment

35%

34%

31%

DOREL JUVENILE DOREL SPORTS DOREL HOME

36%

33%

31%

2018 2017

Geographical Distribution of Total Revenue

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61%

4%

21%

2%10% 2%

US Canada Europe Other Latin America Asia

60%

4%

21%

3%10% 2%

2018 2017

Sustainability Philosophy

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• 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.

Third Quarter ended September 30, 2019 · 4 (in thousands) 2019 2018* Total revenue $ 250,277 $...

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