BRP Inc (DOOO) 2015 Q1 法說會逐字稿

(Spoken in foreign language). Hello, ladies and gentlemen. (Spoken in foreign language) BRP Inc. (spoken in foreign language). Welcome to BRP Inc.'s first quarter and fiscal year 2015 financial results. (Speaking in foreign language). The call is about to begin. I would now like to turn your meeting over to Mr. Pascal Bosse. Please go ahead.

Great. Thank you, Maude, and good morning everyone, welcome to BRP's fiscal 2015 first quarter results conference call. My name is Pascal Bosse, and I'm the Corporate Director of Communications, Public Affairs and Investor Relations. Joining me this morning are Jose Boisjoli, President and CEO and Sebastien Martel, Chief Financial Officer.

So before we move to the prepared remarks, I would like to remind everyone that certain forward-looking statements will be made during the call that are subject to a number of risk and uncertainties. I invite you to read BRP's [MBNA] for a listing of those. And also during the call, references will be made to supporting slides. And you can find the slide presentation on our website at BRP.com under the investor relation's section.

So with no further ado, I'll turn the call over to Jose. Jose.

Thank you, Pascal. Good morning everyone. Before BRP reported this morning financial result that were in lined with our expectation and consistent with the outlook we gave when we release our fourth quarter earnings in March. As such, I am pleased to reaffirm our guidance for fiscal year '15 on the back of a strong free season sales in snowmobile as well as recent and pending product news. This is mitigating the long winter debt impact to the retail sales of off-road vehicle year-to-date.

So for the first quarter, normalized EBITDA amounted to $56.6 million, the revenue is up $758 million. Free cash flow was positive and amounted to $13 million. The 5.7% decline in our revenues, compared to prior year was driven by lower sales in both seasonal and year-round products. When compared to the outlook we gave in March, our results for Q1 were at the better end of our expectation of sale, declining between 5% and 10%. Sebastian will take you through our financial result and guidance in greater details in a minute.

Moving to the business highlight for the first quarter, our retail sales were flat in the aggregate in the first quarter. And this is the result of very strong retail sales in snowmobile in the fourth quarter last year. To a point that we ran out of unit in February and March. The late spring season also affected year-round product sales notably in the snowbell where we shipped 70% of our off-road vehicles in North America. Meanwhile, our dealer inventory of the network was down 5% when compared to prior year due to snowmobile and to the implementation of our new ordering system for off-road vehicle. That provides our dealer with more flexibility, so good news here.

At International, sales were driven by Spark and the successful introduction of the Spider in Japan, coupled with favorable exchange rate. All in all, and despite the headwinds in Russia, our sales at International were up 4% compared to prior year. So this remained a growth opportunity for the future.

And from an operational standpoint, we continue the transfer of our pack distribution business in Sherbrooke to a brand new third party building facility in the [Center of] Montreal. In total, more than 600 trucks were commissioned for the moving of some 50,000 stock keeping units. As of to date, the transfer is completed. Finally, the ramp up of [haul] manufacturing at our Queretaro facility is back on schedule.

The off-road market is strong, and the demand for our Can-Am ATV [then] side-by-side is expected to continue growing. We have announced early May, the expansion of our operation in [URS] Mexico with an estimated $55 million investment for the building of a second facility in this city to manufacture off-road vehicle.

The incremental space will allow us to expand our manufacturing capacity for a potential entry into new segment, and flexibility to in-source some operation. URS was a logical choice. This side gave us access to the US south market. And will provide synergies with existing operation as we already manufacture [all of these] in this city. The construction is expected to start in the coming months with a targeted launching of operation by the end of calendar 2015.

Let's turn to our result by category beginning with seasonal products. Sales stood at $185 million in the first quarter. [Mother year] '14 snowmobile season ended the year on a very strong note with sales up in the low-10s, and we managed to maintain our market share position, despite extremely low inventory level in the network.

From mother year '15, we introduced our line up in March. And the customer reaction has been very positive with, as I mentioned earlier, very strong spring break, spring sale season. So our dealers are very much looking forward to the next winter.

In personal watercraft, we are still early in the season. But the North American industry is up in the high-10s. And Sea-Doo gain market share outpacing the industry. Our Sea-Doo Spark retail in North America has been strong and beyond expectation. This situation echoes the positive reaction we had at International following the introduction of the product in the counter-season market of Brazil, Australia and New Zealand a few months ago. [That's how I] indicate that three quarter of the sales of personal watercraft in North America are used model. As such, the Spark is an attractive option to customer looking for a peace of mind of owning a brand new model for the price of the used one.

We have introduced our Ski-Doo lineup for mother year '15. And the customer reaction has been very positive. Two products to highlight, the (inaudible) Renegade XRS, the most specialized crossovers sled that offer a reinforced chassis, a new front suspension with several engine choice. And the Summit X with the T3 package, an offering that is unique in the industry. Both models were extremely popular in the pre-season sales.

Turning to year-round product, revenue declined 10% to $365 million. And this is in part due to the fact that last year's sale were partially driven by the introduction of the Can-Am, Maverick in the channel. The long-term fundamental of this category looks strong, particularly in the side-by-side where our retail sales continue to outperform the industry season to date. The sales of our commander are as planned.

Having said that, the competitive landscape is moving fast, and we are disappointed with the retail growth performance of our Maverick sales. And this cannot be all explained by the late summer in the Snowbell. So we have launched program to support our dealers and help them move the products.

Moving to ATVs, we started selling the outlanders six-by-six at International and the reception is strong. With an impressive towing and carrying capacity, an [industry unique] six wheel independent suspension, this product is a true workforce. On the Roadster, we are early in the season. But to date, North American motorcycle industry is about flat. And our retail trend is slightly above industry. We have successfully introduced the new Can-Am Spyder RT. The feedback we received is that the customer appreciates the smoothness of the new engine. That was especially designed for touring application.

Meanwhile, we continue our work on the awareness targeting the none non-customers, those not owning a motorcycle, and do have never owned a power sport vehicle before. This quarter we have partnered with MTV, NFL player, Drew Brees and New York Ranger Captain, Mark Messier. I invite you to take a look at the short clips available on YouTube.

We are pleased with the strong interest among existing owners and new customers for the RT. We are convinced that Spyder has a lot of market potential. And so, we continue to invest to grow that business.

Moving to slide 10, in ATVs, we continue to make [in roads] in the high CC category. But the truth is, the industry growth comes from the mid CC segment. It is not only the fastest growing segment, it represent the largest segment of the ATV market with over 50% of the volume worldwide. We believe there is substantial volume potential for Can-Am to grab.

And so, we have introduced in May a family of mid CC ATVs with the Outlander L. The product is offered with two engines option, provides the most power in the industry for comparable CC. It is also available with [two up] package, digital gauge, and a host of lynx quick attach system for accessories that bring to the market the Can-Am DNE at a very attractive price.

Starting at $6,399 US and backed by a 5-year warranty we will now be a fierce competitor in this market with a solid product offering. Keep in mind this is important because VRP is under represented in this market with less than 5% market share. Production of the 500 is starting as we speak and the 450 in August. This will have a positive impact, mainly in the second half of the year.

Now, turning to propulsion system, our sales increased 5% compared to prior year to $97 million. And this is all due to the favorable exchange rates. For [our] board engine, the industry season to date is up low single digit, driven mostly by the new boat in salt water markets.

For jet propulsion system, as we have said on our last earning call, our value proposition to [a boat builder] is very compelling and we're optimistic for the future. Starting tomorrow, and for three days, we'll be hosting a club BRP even-road in Milwaukee, in close distance to our [Serdiven] manufacturing facility.

We are thrilled with the response we have received. All in all, the event will gather 1,400 representatives from dealership, boat builder and the media from all over the world for this first club BRP even-road since 2006. The new products review will be tomorrow evening. I am very excited with this new even-road platform. So we feel very strongly that this will be a game changer in the industry. So, stay tuned.

Sales from our packed business have increased 11% to $111 million. The growth came, primarily from the longer winter condition in North America, driving an exceptional snowmobile season. Of note, we have excellent T3 on the Sea-Doo Spark accessories with 25 fully integrated accessories and 20 different graphic kits that are very popular with the younger customers.

We announced this morning an agreement for the creation of the joint venture with our distributor in the fast growing Chinese market. This investment will provide BRP with 80% ownership in the GV, with a partner we have been in business since 2002.

The Chinese Market represented over 30% CAGR for BRP in the last three years across all our products. And we see a large potential for Can-Am off-road vehicle, and Sea-Doo watercraft, most particularly the Sea-Doo Spark. So from 19 dealers today, our goal is to accelerate our growth in this country to reach 30 dealers within two years. The creation of the GV will become effective February 1, 2015.

This concludes my remarks. I will now turn the call to Sebastien for the financial review. Then I will come back to comment the guidance and business outlook.

Thank you, Jose, and good morning everyone. This morning we reported revenues of $758 million for the first quarter of fiscal '15, a 5.7% decreased from fiscal 2014. And as Jose mentioned, consistent with the guidance we gave back in March.

Our gross profit of $173 million for the quarter resulted in gross margins of 22.9%. The decrease in margins is mostly due to allure whole sales volume in both seasonal and year-round products. The decrease is also due to the onetime cost for the production ramp-up at the Queretaro facility and for the cost related to the transfer of our pack distribution business to a third party facility. Normalized EBITDA came in at $56.6 million or 7.5% of revenues. And this resulted in a normalized net income of $16.6 million or $0.14 per diluted share.

Now, turning to our revenues by categories and geographies on slide 16, 24% of our sales came from seasonal products, 48% were from year-round products, 13% from propulsion systems, and 15% from parts, accessories and clothing. And the regional breakdown for the quarter was 50% of sales from the US, 17 from Canada and 33 from international.

Now, turning to the normalized EBITDA and normalize net income bridge on slide 17. Volume mix and pricing had a negative impact of $37 million. We incurred higher net production cost for $8 million notably due to the [character OPWC] production ramp-up, and pack distribution outsourcing.

As we have guided for the full year, our depreciation charge is higher. And reduce net income by $6 million. Financing cost, income tax expense and foreign exchange, [$115 million] favorable compared to last year.

Now, moving to the balance sheet items, we had a slight increase on our cash balance from year end levels to $76.9 million. We have invested in working capital in the amount of $5.8 million. Our inventory levels at the end of Q1 are higher than planned. And we are forecasting to be back to our expected levels at the end of the second quarter. Our long-term debt has increased from year-end levels, cost by additional debt of $17 million, offset in part by favorable exchange on our US denominated debt. CapEx were slightly down to $22.9 million. And we ended the quarter with positive free cash flow of $13.1 million.

Just to provide you with a quick update on BRP power sport dealer inventory for North America at the end of April. When compared to the first quarter end of last year, dealer inventories were down 5%. And this was mostly driven by the exceptional snowmobile season we just had. Despite, year-over-year growth in dealer account and our growing [RRV] business, BRP's network inventory have remained flat due in part to our new dealer ordering system. All in all, we are comfortable with our dealer inventory current inventory position.

Finally, our guidance for fiscal '15 on slide 20, you will see that it is essentially unchanged other the unexpected sales growth for different categories. So for the year we are still expecting growth in total company revenues of 9% to 13%. But this growth will be coming more evenly from seasonal and year-round products. Revenue guidance for seasonal products is going from up 5% to 10% to up 9% to 13% driven by the strong snowmobile orders in North America.

Year-round products guidance is going from up 12% to 15% to up 9% to 13% reflecting as Jose mentioned a slower retail growth on the Can-Am Maverick side-by-side. All other metrics remain essentially the same with normalized EBITDA forecasted to grow between 11% and 15%. Normalized net income forecasted to grow between 10% and 17%. As you know our Q2 results have always been softer, and as we transition from watercraft to snowmobile production, and move year-round products to a new model year. Therefore, we are expecting our quarterly financial performance to be comparable with last year.

The second half of the year, however, is shaping up to be strong and stronger than we had expected back in March. This is coming from the snowmobile orders we have on hand, following the spring order period, and the benefits of the Can-Am Outlander L introduction. And on that note, I will turn the call back to Jose.

Thank you, Sebastien. So all in all we are pleased that our first quarter result came in as expected. And we are very much on track again our plan. Early into fiscal year '15, the positive has been the very strong spring season sales in snowmobile, strong reception for the Spark worldwide, and the situation in Russia that remain stable versus our initial expectation.

From an operational standpoint, the challenges faced in Queretaro related to the haul manufacturing has been resolved and we are back on schedule. We have adjusted our guidance to accounted -- to account for higher sales in seasonal product, and lower sales in year-round product. Yet, that in mind, I am pleased to reaffirm our guidance for fiscal year '15. And I'm confident we can successfully deliver.

On our five strategic initiatives, we continue our product innovation on mother year '15 with the introduction of our snowmobile. And tomorrow is product launch at club BRP [event room]. We also have more to come with the plan Sea-Doo and Can-Am Spyder club in September. We continue to support the growth of our year-round product with new launches. And have introduced the Outlander L family.

Our dealer expansion plans are on track for 65 to 75 new dealers in North America this year. International sales are grown 4% despite the situation in Russia. We have also signed an agreement for the creation of the GV in China. And we continue our longer term initiative to improve margin with the announced expansion of our manufacturing in URS Mexico.

In summary, the business fundamental are strong. We have exciting upcoming product news. And the outlook for BRP's business is promising.

So with that, I will turn the call back to the operator for question.

Thank you, Mr. Bosse. (Operator instructions) We thank you for your patience.

Our first question is from Cameron Doerksen from National Bank Financial. Please go ahead.

Yes. Good morning.

Good morning, Cameron.

Good morning.

Just a question on the -- I guess on the guidance, I mean, you talked a bit about it, your Q2 is going to be kind of flattish year-over-year, which really implies a very strong second half. And you've highlighted some of the things that are going to drive that second half, maybe is there any way you could sort of rank what are the biggest drivers, maybe the top two or three that are going to result in the second half being as strong as you expect?

I mean, first, in Q2, we are in transition like Sebastien explained between mother year '14 product line and mother year '15. We're ramping up snowmobile production. But not shifting a lot of units. And also our factory worldwide except United States are shut downed for two to three weeks, depending of the countries. Then, overall this is always been the weaker quarter for us preparing for the back-end of the year. But what happening this year is a bit also special, because we're stopping our assembly line in Queretaro for watercraft or Spark in June, there will be a three months revamping of the assembly line because we're restarting Spark production in September.

The traditional watercraft will start in Queretaro in Mexico probably in December, beginning of January. Then, in the fall you have -- in the second half you have first very strong snowmobile order on hand and production will restart. You have the Spark production restart in Queretaro. And we need to resell the pipeline. We have the Outlander light 450 and 500 that are ramping up. And on top of the ATV and side-by-side mother year '15 is ramping up. Then this is basically why Q2 will be about in line with last year. But Q3 and Q4 will be strong.

Okay. It make sense, just maybe one quick second one for me, just on the announcement on the China joint venture, I presume that the amount that is being invested is not overly material. And I'm just wondering if also that -- is this an exclusive arrangement in China or are you able to deal with other partners there?

We've been doing business in China since 12 years. And we had at one point three distributors in China. But in the last few years, we're -- [Smooth Marine] was our main partner there. And we established an office in Shanghai in 2012 where their team and our team are co-located in an office. And we had discussion with them for a few months about going direct in China, but creating a GV because they definitely have added value.

But over there, we're selling all our product line. But with the venue of the Spark, we believe there is a strong potential. And we believe that being in the majority joint venture, we can accelerate the offering of dealers, then who will be direct in China -- I mean, our GV will be direct in China for all the country. And we believe we can accelerate the base there.

And on Cameron on your question on materiality, it is not a material investment for us this GV announcement.

Okay, very good. Thanks, very much.

Thank you.

Thank you. Our next question is from Martin Landry from GMP Securities. Please go ahead.

Good morning. Maybe just little more details into your Q2 guidance, is it mostly going to be sales are going to be flat or you expect sales to grow and have a little bit of margin impact?

Yes. Martin, this is Seb. As we mentioned, our Q2 profitability is expected to be flat. That's the level of guidance we're getting this morning for our expected results only. So it's the profitability.

The thing to that Martin, is we are in a big change over in Queretaro. And that is creating a lot of expenses, because we have to install the new line for our traditional watercraft.

Okay, okay. And you're talking about your new manufacturing plant in Juarez, can you give us a sense of how much revenue could that plant support when fully ramped up?

That's a tough one, Martin, obviously for competitive information, we need to be careful with this information. Basically our off-road business is growing at a fast pace. And we feel that in two years we'll miss capacity in Juarez. And at this point, we feel that it was the right time to invest. And the intention is to enter a new product category in ATV and in side-by-side in time. But for competitive reason, I cannot give you more color than that.

Okay. And are you still talking about the same timeline production to be ramp up at the end fiscal '15 and then at two years ramp up?

Yes, yes. Production should start on the back end -- late 2015, ramping up in calendar year 2016.

Okay. Okay. Thank you very much.

Thank you.

Thank you.

Thank you. Our next question is from Robin Farley from UBS. Please go ahead.

Great. Thank you. Two questions, one is just to clarify, in your off-road outlook which you're kind of lowering the growth rate a little bit. Is that a worst outlook for the industry? But the Maverick competitive issues you talked about or is it an unchanged outlook for the industry but just the Maverick specific issue?

And also, you mentioned the second half driver being the Outlander. And I guess that's all we've been retailing for such a short amount of time. I wonder if you could tell us why that would lead you to think that would be stronger in the second half than versus prior guidance? And then I have a second question about your on-road business, but let me just start with off-road.

Okay. Then, on the off-road business, I would say the industry is doing about half plan. And like I said, in my opening the Commander sales is doing as targeted. On the Maverick side, on the sport category, the competitive landscape have changed. And I want to make it clear, our Maverick sales are growing but lower than what we had targeted. And this is -- and we all know that this is a two horse race. And we're challenging [Polaris] on this product category. And we'll continue to challenge them.

But last year, we ramped up the Maverick production. We sell the pipeline. Some dealer have their own mix of Maverick because there is many model there. And now, we need to have them to move the product in model year, some mother year '13 and mother year '14, we need to move the product to make place for the '15. Then, that's why we decided to be prudent in our guidance for the end of the year to reduce slightly our outlook for off-road vehicle.

On the ATV side, we need -- right now, we are in the transition where we filled back the pipeline of ATV mother year '15. And at the same time we're ramping up the Outlander L. We had the first booking in June with dealers. And the booking is strong the Outlander All right, and it will ramp up mainly in the second half of the year.

Okay, great. Thank you. And then my question on the on-road business, it's always a little confusing because you guys refer to season to date, and there's a different season for all your product lines. And maybe if you could put it in terms of the April quarter just to -- you mentioned for the [roadster] that the North America industry was flat season to date. I don't know if your season to date is starting sort of in March. But I'm just trying to think about how the spring has gone. And we know that the motorcycle industry in general was maybe flattish in the March quarter.

So if it's flat season to date that's kind of implying that April maybe was flat or down for the industry. And I guess maybe a little surprising after the difficult winter that there would have been -- and so -- and I don't know if I'm reading that correctly in terms of how things have gone since the start of the spring and kind of April. And I don't know if you had any comments about May so far as well.

For us season to date is starting, I think, the season is --

November, November.

The [season] is starting in November for us. And it's still the end of May. And season to date the motorcycle industry is about flat. We are a low single digit on the [roster] sales and there is no doubt in our mind that the long winter have affected some retail.

The thing that happening the sales of RT with the new engine is doing extremely strong, we have -- we are a bit behind our plan on retailing the non-current. We have some mother year '13 in the pipeline. And it seems -- despite the rebate, it seems that the customer preferred to move to the new RT 1330 despite the rebate we have on the '13. Then, because of that we have in rich our program beginning of June. And we heard feedback already from dealer that the additional program that we have implement are helping to move the product. But so far, we feel overall good about the roadster business.

Can you give any color on the sort of April or April and May just to get a sense of how incremental sales has been since the winter or just how the outlook has been since the end of the winter?

I would say that it was a bit funny, we started delivering the RT end of January. And we had early buyer, who buy the product to go to ride in the south. And after that, it was quiet in March, April. And it started to pick up again in May strong. And we had like a very, very early January, February retail, quiet in March, April and restarted strong, in May and June is looking good so far.

Okay. Thank you.

[But funny spring], I would say.

Great. Thank you very much. Thanks.

Thank you.

Thank you. Our following question is from Benoit Poirier from Desjardins Capital Markets. Please go ahead.

Yes. Good morning. So my first question is just to come back on the Spyder. You [end up] you did a lot of good advertisement on that product in order to increase the brand awareness. So I'm just wondering, what is the log between those investments and when we should start seeing big improvement in the sales?

First, I would like to say that we're starting to have [data in] the awareness in United States with the new promotion campaign is working. The awareness of Spyder with the none non-customer have increased in the loadable digit in the last -- since the beginning of the campaign. And we are happy with the result. And there is a log and to be honest, this is a bit a non-precise high-end how long will be the log.

We believe that already some people are going to the dealership trying the product. But they don't necessarily buy right away. Then to be honest, I believe the log could be anywhere between a year to two years. But we still believe that long-term is the right thing to do for the Spyder business because this is the most potential that we have in that business.

Okay. And would you say so far, Jose, that you are probably a little bit below expectation in terms of Spyder versus what you would forecast probably three or six months ago?

We are above expectation for the RT current sales, below expectation for the non-current sales.

Okay.

And that's why we enrich the program on the non-current models. It seems, Benoit, that when the customer try the new RT with the new engine versus the old one, they go with the new one right away.

Okay. And maybe on Maverick [you expect], could provide more color on the competitive dynamics especially with Polaris, because it's more a question of the product offering, the pricing and whether you're able to tackle that situation?

I think it's clear that Polaris is the leader in the sport segment and we are the challenger. And it's the product, but also the dealer network. And for us to be gaining momentum on our competitor, we need to be stronger. Then the Maverick is a very good product. But they introduced last fall a new sport vehicle that is competitive. And we saw our growth, and again, I want to make it clear, Maverick is growing, but slightly lower than what we had planned. Then for us, we are the challenger. We like those race. It's a two-horse race. And we will get better. But for us, it's a combination of product and the dealer network. And we have plan right now to move products.

Okay. And maybe last question, Jose, just related to whether do you see any push -- I mean, do you expect more sales to happen in Q2 especially for the year-round products given what happen with the winter, do you expect a little bit more sales overall in some markets?

I would say right now the season turned quite good since the beginning of June. Traffic were slow in February, March, April. But right now the season in June is turned -- I would say normal.

Okay, perfect. Thanks for the time.

Thank you.

Thank you. Our following question is from Tim Conder from Wells Fargo. Please go ahead.

Hey, [Mark Magnet] here for Tim Conder. Could you provide any more detail on how much the PWC ramp issues in Mexico first quarter sales and margins? And when was the issue resolved?

Like we said the -- when we decided to push some deliveries or to further production schedule for the whole issue, it was a question of efficiency. It was casting [a forth soon] to meet the original schedule. And we decided to push it to make it more efficient and at more affordable cost. Then we were speaking of a couple thousand unit that were plan to ship in Q1 that will be ship in Q2. And we're back on track on the whole production in Queretaro.

And the margin impact was about 110 basis point impact on the margin for Q1.

Okay. And do you feel that your PWC advertising is huge [so far this Spark]?

We're very happy with the Spark retail. The plan was to introduce a new product, to attract new customer and dealership. And so far, it's working extremely well worldwide, in North America and International. The dealer are reporting that customer come in for the Spark, some upgrade to the bigger machine, but most of them by the Spark. And it's creating a lot of excitement with the dealer network. We now focus more on watercraft than in the past. And I think it will have the positive momentum.

As you know on mother year '14, we allocated production worldwide. And production is ending right now in Queretaro for the changeover, will restart about mid-September in Mexico and we'll resale the pipeline. But so far the Spark is delivering on what we have plan even better than plan. And we're very enthusiast about our watercraft business long-term.

Okay, great. Thank you.

Thank you.

Thank you. Our following question is from Gerrick Johnson from BMO Capital Markets. Please go ahead.

Hi, good morning. Sebastien, first quarter inventory up 25%, was that mainly the differed of personal watercraft or what else might have been in there? And also what's the appropriate level? You said you'd be back into appropriate level after 2Q. And what is -- what would that level be?

Yes. The increase in inventory is two factors, one, we had a bit more with -- in our inventory related to the PWC. And also we had more ORV inventory as the retail slow down for the Maverick in Q1. And with our ordering system with the dealers, we let them -- we give them more flexibility in adjusting to orders. So we finished with a bit of ORV inventory.

As for the expected levels for Q2 we were expecting to build inventory at the end of Q2 because we are in snowmobile production ramp up. So we'll have more snowmobile inventory. So when you compare the inventory position at Q2 versus Q1, we should be pretty even in terms of inventory dollars. But that's what we had expected for Q2.

Okay. And then Russia in the quarter, was Russia tracking down the 20% you guys had expected? What are some more specific numbers out of Russia?

Yes. Russia guidance is still as we had said back in March same impact [in EPS]. It is as expected. So there's no change versus what we had given [new] March year.

Are you still there Gerrick? Maude, I think we've lost Gerrick.

I believe he has hanged up. I'm sorry.

Okay.

So we will go with the next question.

Yes.

It's from Chris Bowes from Canaccord Genuity. Please go ahead.

Hi, good morning. Sebastien, if I understand correctly, you said that you -- the feeling on the second half is stronger than when you give the guidance in March. So does that mean you're biased perhaps towards the high-end of your guidance range or can you maybe talk about that?

No. There's no bias in our guidance range. The range is what we published this morning in terms of if you're referring to the top line. It is within what we published. There's no high or low biased in our guidance.

Okay.

What's driving is the snowmobile orders which are much stronger. And that's why we're pulling much better profitability in the second half, given initially anticipated.

To give you more colors, typically when we introduce -- every OEM they introduce their lineup in February or March and there is what we call the preseason sales, where customer can buy or reserve their unit. They give a deposit to reserve their unit for delivery in the fall. And typically we're happy when about 25% of our production is presales to customer. And this year I believe because of the long winter, because we have strong product line, and on top of it, we had good promotion, then our presales order to customer is significantly higher than the 25%. Then because of that -- or the dealer have order more snowmobile than what we had planned back in march. This is creating some challenge in production because all the production, all the snowmobile deliveries need to be done by mid-December. But we were able to fit in into our production plan in [Redcore] and in Finland. And that's why we have increased our guidance on seasonal product.

Have the snowmobile started production, yet?

They're starting production Monday.

Okay. And then just switching gears to the side-by-side, on the Maverick in terms of the changes that you'd like to make to the product is this just because the Polaris offering has more horsepower? And is there a question of a new engine? Is that where you're leaning on the product or can we be talking product issues you'd like to fix?

I mean, for the product has no issue. The Maverick are running extremely well. But the sport segment is a very competitive segment. And we are used to those competitions against our competitor in all our product line. And we'll find ways and time to improve the product.

Also what happened with the Maverick, some dealer have the wrong mix? As you know last year we fill up the pipeline with the Maverick, it was the first year for Kennan dealers to sell sport side-by-side. Then there is some dealer who had to order too much of this not enough of that. On top of it we started to produce the Maverick four-seater, beginning of the year. Then there is some adjustment to be made in the network. But again the Maverick is growing. We need to do some adjustment. But we're happy overall.

Okay. Thank you.

Thank you.

Thank you. Our next question is from Mark Petrie from CIBC. Please go ahead.

Hey. Good morning. Thanks. Just a couple of quick follow-ups, in terms of the Spark would you say that it's on track in terms of your exceptions on cannibalization of the current line? And then also I know you spoke about accessories being strong. But would you say that that's in line with your expectations or our gross margin is a little bit better because you're actually able to improve that accessories mix somewhat?

On the retail is better that expected. What we're reading right now and it's a bit difficult because in some country we're out of Spark quickly. But we feel the cannibalization is about in line with what we had planned. Then, we're very happy with those data.

In terms of accessories, the Spark is dedicated to a younger crowd. And I give you the example of the [wrap kit] for $250 you can personalize your product. Then this is doing better than what we have planned.

Okay. Thanks. And then just on the Spyder again, just a quick follow up, could you just -- where is the growth coming from? Like on the Archie units which you're saying are performing well. Where is the growth sort of mostly coming from? Is it newer markets and newer dealers or are you performing better in your existing sort of strong holds?

This year because we introduced the original [Arc] Team 2010 and there was some change evolution on the product from 2010 to 2013. But this year it's a drastic change, in '14with the new engine and we see a lot of the trade-in but at the same time a lot of people that didn't buy the [all RT] are ready to buy because of the new [pair] pack then. It's a mix of trading people who trade their [all RT] for the new one and new customers. That being said we still believe that the biggest potential for Spyder is what we call internally the none-none; people who had motorcycle, who don't have it, people who'll never have motorcycle and that's why we're building -- we're trying to build the awareness in North America at the faster pace because this is where the biggest potential hold for Spyder.

Okay. Thanks.

Thank you.

Thank you. Our next questions is from [Craig Tennyson] from Robert W Berg. Please go ahead.

Good morning and thanks for taking my question. Many have been address already but with the early success of Spark is there any desire to reallocate some of the ads spending you have dedicated to Spark maybe there's some other categories that may need help?

Hi, this is [Sam]. Yes. We've actually -- that's a good question we've actually adjusted some of the spend that we were planning to for Spark. We did reduce a bit of the money we were investing and allocated to the other product lines given the success we had. The doors swings of the dealers are good in terms of people inquiring about PWCs. So we're satisfied that we were creating enough traffic and adjusted our spent down, we're going to allocate it back to other product lines.

Thank you. And then lastly could you comment on credit of the availability at the dealer level and also at the consumer level today.

On the dealer level credit availability as you saw our dealer inventories are down compared to a year ago. So credit is not an issue at the dealer level. We're working with TCF actively in managing over all dealer credits and it's been a great partner for us since we've been with them. And today dealer credit is not an issue. And for a consumer credit we have backing with Sheffield which is our retail finance partner. And we're working as well with them actively to facilitate credit to our consumers and where not seeing any hold or roadblocks here.

Okay. Thank you.

Thank you. Our following question is from Jerry Johnson from BMO Capital Markets. Please go ahead.

Hello again. I apologize I disconnected myself. Jose, can you -- and if you answer this already I'll catch a transcript. But Jose can you comment on the management changes? We read all about in the press release but maybe we could hear your own words what you're doing and what the strategy is and some comments around that. Thank you.

We've been at a standalone company for 10 years and a lot of the VP's and director had and invested BRP's. And after 10years going public some who are requisitioning a guy like [Iblazik] was requisitioning does he wants to be number two for few more years at BRP or number one in other company. And that was not something that happened overnight is discussion I had with eve and Flow with our first (Inaudible) carrier. And it was clear at one point that they would leave the company. And at one point I cannot wait that they decided a different timing. Then we sat down with both -- I sat down with both of them and we wanted -- they wanted to move at one point. I felt that the timing was right.

The other thing is I believe that who would have been the same management team for 10 years to had a new person from outside. And [Deleco] will join next Monday. And even [Claude] moving [Sebastian] was really then -- those things happen after 10years. Where we had the very stable management team two left, one is coming.

And also there was synergy to be gain by merging North America International. Our international management teams have evolved drastically in the last few years. We double our management team in the last two years and we double our business. And that management team at international is a lot stronger than it was the right time to merge with North America International to maximizing synergies. Then it's a question of timing after 10years with the same management team and I strongly believe that it was the right time and the right move to do.

Okay, great. Thank you very much.

Thank you

Thank you. We have no further questions. So (inaudible) at this time I would now like to turn the meeting back over to Mr. Bosse.

Great. Well, thank you very much, Maude. So I want to thank all of our participants for today's call and thank you for your interest and your support. And I invite you to join us for our first annual shareholder meeting that will be held today this afternoon at 1 pm. And you can listen for the proceedings over the web at the brp.com. So thank you very much and you all have a very good day. Thank you.

Thank you gentlemen. Our sessions now ended. Please disconnect your lines at this time and we thank you for your participation.