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Dorel Looking to Unseat Top Competition

Published May 27, 2008

MONTREAL, Quebec (BRAIN)—Dorel Industries has its sights set on gaining a dominant worldwide position in the bike industry, and will continue eyeing acquisitions in order to get to the top, Dorel’s president and chief executive officer Martin Schwartz told company shareholders during an annual meeting on May 27.

“The Cannondale purchase is the first step in Dorel’s goal to become the world’s No. 1 IBD player. Backed by Dorel’s extensive resources, the Cannondale Sports Group will build on Cannondale’s strengths to grow significantly in the IBD channel. Our intention is to seek further acquisitions in similar high-quality performance bicycle companies and create new innovative products to become an overall global force in bikes,” Schwartz said.

The Cannondale Sports Group was formed after Dorel acquired Cannondale in February, and includes its namesake brand, as well as GT, Sugoi and some models of Mongoose and Schwinn. Last month, with Dorel’s support, Cannondale formed a new Advanced Product Division to focus on innovation, design, technology and manufacturing and production methodologies for bicycle development.

Dorel is a $2 billion company that manufactures products in the juvenile, home furnishing and recreation/leisure segments.

Dorel entered the bike industry in 2004 with its purchase of Pacific Cycle. The year before, 58 percent of Dorel’s revenue came from its juvenile segment and 42 percent from home furnishings. This year, home furnishings is expected to make up just 22 percent of revenue, while recreation and leisure is expected to take over 27 percent of the top line pie, said Jeffrey Schwartz, Dorel’s chief financial officer.

With just two months of Cannondale and Sugoi sales on the books and robust sales of Pacific Cycle brands, Dorel reported its best-ever earnings in the first quarter of 2008.

In the recreation/leisure segment, year-over-year revenue was up 55 percent and earnings from operations soared 106 percent.

“We are extremely encouraged with the prospects of the recreation and leisure segments. Now is an enormous opportunity to capitalize on the changing mindsets and trends around the world. People are actively engaged in seeking healthier lifestyles; are concern about the environment and want to do something about it; and desire sustainability at all levels,” Martin Schwartz said.

During the meeting, Schwartz addressed the “mudslinging” that followed Dorel’s acquisition of Cannondale and its announcement that it hoped to take over the top spot in the specialty channel.

Schwartz said Dorel executives were particularly bothered by a recent story published by a national newspaper.

“The main source of this is a letter one of our competitors wrote when we acquired Cannondale. He questions our presence in the high-end bike business and states we won’t be able to keep up the high standards of quality. What else do you think a worried competitor would say?

“Let me tell you something about being competitive. Since acquiring Cannondale, sales have been 10 percent over their previous year, so our customers do believe we will maintain the standards and are saying so with their checkbooks,” he said.

Toronto’s Globe and Mail newspaper ran a story titled “The Bike That Launched a Rolling Feud” on May 15 that quoted a letter penned by Mike Sinyard, president of Specialized, and a response from Jeff Frehner, the president of Cannondale Sports Group. Martin Schwartz, president and chief executive officer.

Schwartz closed the meeting by saying that the company’s first quarter performance indicates that Dorel has the right combination of products and pricepoints for consumers at the right time.

—Nicole Formosa

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