Dorel deepens footprint in South America

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Dorel Industries Inc. 's latest acquisition – a controlling stake in a group of companies that owns the most popular juvenile-products brand in South America – furthers its geographical diversification strategy, but with a twist.

The Montreal-based manufacturer of bicycles and car seats and other kids' safety products is for the first time getting into retailing with its deal to buy a 70-per-cent position in the Santiago-based group known as Silfa, which owns and distributes children's car seats, strollers and other products, including the market-leading Infanti brand in Chile, Bolivia, Peru and Argentina.

Dorel executives, on a conference call Thursday to discuss third-quarter results, were quick to play down the idea that the company wants to expand further into retailing. But there is no doubt the 52-store chain of Baby Infanti specialty shops in Chile and Peru that comes with the acquisition helps give Dorel an edge in marketing its baby gear in a new market.

There are no plans for Dorel to go big and bold in retailing, said Dorel's chief financial officer, Jeffrey Schwartz. But he said the stores provide a welcome window into a region where a young population and a swelling middle class are boosting consumer demand for juvenile products.

"We are going to learn about retail," Mr. Schwartz said on the conference call.

That, in turn, should help Dorel sharpen its marketing knowledge in the region as it hunts for other potential acquisition opportunities in Latin America, said president and chief executive officer Martin Schwartz.

"We're looking to expand, and we're going where the middle class is growing, where demand for the product is growing," the CEO said in an interview.

North America and Europe – where Dorel is well established – are solid markets but the company increasingly needs to be in faster-growing emerging markets, he said. "We do have our eyes open for other areas in South America, and so time will tell."

Dorel is already a partner in a joint venture in Brazil. The move into four new South American countries follows a proven business model of partnering with established companies that know the territory in fast-growing markets, said Dorel juvenile segment group president and CEO Hani Basile.

The deal with Silfa, which is expected to close in the fourth quarter, is a good one, said Leon Aghazarian, an analyst with National Bank Financial. "It fits. It makes sense for them," he said.

Among the benefits are the fact that Silfa's profit margins are superior to Dorel's and there is solid growth potential, Mr. Basile said in an interview.

For the third quarter, Dorel said its profit plunged almost 25 per cent to $23.1-million (U.S.) – or 71 cents a share – from $$30.6-million or 92 cents a year earlier, on reduced consumer demand for its juvenile products in the United States and Southern Europe.

Revenue reached $575.8-million, up slightly from $569.5-million.

Dorel Industries (DII.B)

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