Cannondale Frame Production Outsourced

MONTEAL, Canada - Despite a fourth-quarter slowdown, Dorel Industries Inc. owner of Cannondale and Pacific Cycle reported it’s best-ever year in 2008, with its cycling products a big factor in fuelling the company’s growth. These positive figures could not prevent a major reorganization of the Cannondale operation in the US.

Result of that reorganization is the closing down of the US frame production at the Cannondale facility in Bedford. As of 2010 the frames will be sourced in Taiwan resulting in a reduction in Bedford from the current 300 employees to approximately 100.

The Bedford operation will be focused completely on final bicycle and headshock assembly, CNC machining, testing and quality control, bicycle warranty repair, inside sales/service, distribution and customer support/administration.

The outsourcing of the frame production is a part of a US$ 4.5 million (€ 3.4m) reorganization plan of the Cycling Sports Group (formerly the Cannondale Sports Group). In the new structure, the Recreational/Leisure division of Dorel Industries will have five ‘Centers of Excellence’. Each location will focus on a specific market segment or expertise.

The global headquarters and innovation center for high-end bicycles will be located in Bethel, US. The Cycling Sports Group also intends to locate here all North American product development, marketing and business management functions for all four cycling brands Cannondale, Schwinn, GT and Mongoose.

The office for high-end bicycles sold in Europe will remain in Basel, Switzerland, while the global mass market products will be handled from Madison, US and office in Vancouver, Canada will deal with the lifestyle, apparel and footwear market. The Taichung office in Taiwan will coordinate sourcing, quality testing of Asian suppliers.

Financial Results 2008

Dorel’s total earnings for all three of its businesses (Juvenile, Recreation/Leisure, Home Furnishings) were US $2.2 billion (€ 1.5 billion) in 2008, an increase of 20.3% over 2007. Net income rose 29% to US $113 million (€ 76.5 million).

The Canadian company achieved a 10% increase in organic revenue growth in its Recreational/Leisure division, which includes Schwinn, Cannondale, GT, Mongoose, and Sugoi.

“Despite the deepening global economic crisis through the second half of the year, Dorel’s products continued to demonstrate that they are in demand even in times when retail sales as a whole decline,” said Dorel CEO and President Martin Schwartz.

Revenues from the Recreational/Leisure segment made a big jump in the fourth quarter (79.2%) for a total of US $643,9 million (€ 435,9 million). This increase was in large part due to the purchase of Cannondale, Sugoi, and PTI Sports. The earnings for the year improved by 31.4%. Gross margins climbed to 23.4% from 19.5%, primarily because of the higher margin products sold by Cannondale and Sugoi. But, even with the current consumer wariness brought on by the economic downturn, Schwartz maintains Dorel remains well positioned to continue its success.

“In difficult times consumers lower their discretionary spending and often seek out lower cost alternatives. As a result, Dorel expects a greater percentage of its sales to be in the opening to mid-price point products. Dorel is a leader in these categories and expects to increase its market share.”

Fourth-quarter numbers were the most disappointing for the company. The company attributed this to reduced orders by retailers wary of being overstocked in a poor economic climate during a traditionally slow time for sales in the cycling industry. Actual retail sales however, did not suffer as quite as much as expected.

“The Recreational/Leisure segment was able to grow sales organically in this environment,” said Schwartz, “but they were still lower than our expectations.”