BRP Inc (DOOO) 2015 Q4 法說會逐字稿

Hello, ladies and gentlemen, (spoken in French) welcome to BRP, Inc.'s fourth-quarter and fiscal year 2015 financial results. (Spoken in French). The call is about to begin. I would now like to turn the meeting over to Mr. Pascal Bosse.

Good morning and welcome to BRP's fourth-quarter and year-end results for fiscal 2015. Joining me on the call this morning are Jose Boisjoli, President and Chief Executive Officer, and Sebastien Martel, Chief Financial Officer.

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 risks and uncertainties. I invite you to read BRP's MD&A for a listing of those.

Also during the call references will be made to supporting slides and you can find the presentation on our website at BRP.com under the Investor Relations section. So with no further ado I will turn the call over to Jose Boisjoli.

Thank you, Pascal. Good morning, everyone. BRP reported this morning its results for fiscal year 2015 highlighted by double-digit revenue and profitability growth and a good free cash flow generation.

Starting with an overview of the financial result on slide 4. Revenue increased 10% compared to prior year to reach CAD3.5 billion. The increase was driven like a 14% increase in revenue from North America offsetting the weaker performance in Eastern Europe.

Our gross profit margin for full year was 24%, a decrease that is notably due to unfavorable currency exchange rates impacting margin by 100 basis points. Overall our performance resulted in an 11% increase in normalized EBITDA and a 16% increase in diluted normalized earnings per share compared to fiscal year 2014.

I would like to highlight that the effective tax rate was lower than expected and Sebastien will cover the financial result in greater detail in a moment. So all in all the year turned out more challenging because of the shift toward the back end of the year, but we nevertheless stayed the course and we focused on the execution of our plan to deliver solid results.

Moving to the business highlights on slide 5. Revenue from North America increased by 14% compared to prior year. Our retail sales for Seasonal and Year-Round Products increased by 8% when compared to last year. Revenues from international increased moderately by 3% driven by the strong reception of the Sea-Doo Spark and higher volume of Year-Round Products. This increase includes a 25% decline in revenue from Russia. Excluding Eastern Europe revenue from international increased by 8%.

Operationally we also accomplished a lot. And I am proud of the collective effort of our teams to execute on the strategic initiatives. One of the objectives is to constantly bring to consumer market shaping product and this year again was no exception across all our product lines.

In snowmobiles we introduced the T3 package available on the Summit X mountain sled, an offering that is unique in the industry, and the Renegade X-RS sled that is having a strong market success in the crossover segment.

In Year-Round Products we introduced the Outlander L family of ATVs, a brand-new offering in the mid-cc category that brings the Can-Am DNA to the largest segment of the ATV market. The Maverick Xds and Xds Turbo, the first side-by-side available with a factory installed turbocharger. And last but not least, the Can-Am Spyder F3, a brand-new approach to the roadster with a lowered seat, lay back riding position and a unique look that will attract to a broad customer base.

And in Propulsion Systems we introduced the Evinrude E-TEC G2, a completely new and differentiated offering in the outboard engine business. This launch has created a lot of noise in the marine industry, so much that we successfully signed 20 North American boat builders throughout the year. The market reaction and consumer reception to all these new products has been very positive.

Another of our key strategies is to grow margin long-term and, while we witness a decrease in gross margin, we are very much focused on project execution, such as completing the transfer of our personal watercraft assembly to Mexico. We also surpassed our targeted 65 to 75 new dealers in North America with the addition of 76 new dealers in fiscal year 2015.

Finally, before closing on operations, I would like to take the opportunity to thank all our employees for their engagement and hard work and for delivering the best ever performance on the health and safety front. Our workplace accident rate stood at 0.87 for last year, a result I consider to be world-class performance.

We strive to nurture a culture where employees look after the safety of their colleagues as well as their own and I am pleased of this year accomplishment.

Turning to Year-Round Products, our revenue bounced 53% in the quarter driven by shipments of the Outlander L ATV family for a full quarter, shipment of the Maverick Xds and Xds Turbo, and shipment of the Can-Am Spyder F3.

Also we witnessed a change in ordering behavior from our dealers in North America with some of [RV] shipments shifting from Q3 to Q4 as a result of the monthly online ordering management system. This tool enables our dealers to better match deliveries with the spring retail season, which explains part of the bump in Year-Round Product revenues.

Industry wide for ATV season to date, the industry is about flat while Can-Am ATV retail is up low-single-digit driven by the mid-cc segment. The feedback of our customers to our product offering is encouraging with a complete lineup and I'm happy with the market reception of the Outlander L family of ATVs.

For a side-by-side, the North American industry is up mid-teens season to date and we are trending behind in terms of market share due to continued growth in the utility segment that we do not compete in representing about 60% of the volume today.

No doubt that the off road vehicle business is highly dynamic and this is an environment where BRP thrives through product innovation and value proposition to consumers. This segment will be an important earnings lever for several years to come and I look forward to bringing to the market innovative product that will help BRP grow its Year-Round Product business.

On the roadster side, very early in the season. The motorcycle industry is up low-double-digit driven by low displacement sport motorcycle while Can-Am is up high-single-digit. Following the launch of the Spyder F3 in September, the demo tour had been traveling across the US and Europe to promote the product with a riding-is-believing claim.

We started shipping to dealers in January and so a limited number of units have been retail, but I'm very pleased with the excellent reviews worldwide. From its configuration, the Spyder F3 opened new opportunities to grow the lineup and it is appealing to a large audience, the cruiser market, representing an estimated two-thirds of the traditional motorcycle industry.

On slide 7 an update on the Juarez II project. We broke ground in November and the construction of the 400,000 square foot facility is well on its way. The proximity to our existing Juarez I plant provides us with operational synergy with supplier, an excellent talent pool and flexibility to leverage the existing employee base to reduce start-up risk. The project is on track and we are planning to start up production on the back end of the fourth quarter.

Now the Seasonal Products on slide 8. Revenue decreased by 4% in the quarter compared to prior year. The decrease in revenue was mostly driven by the situation in Russia and Scandinavia. As of January 31 the North American snowmobile industry was up mid-single-digit season to date with Ski-Doo gaining market share.

We had a late start to the season in the East, but the average snowfall combined with sustained cold temperature in January, February and March preserved the [slow coverage], so overall we had a good year in the East. However, in the Midwest and on the West Coast snow conditions have been variable with weak precipitation noticeably in the mountain where we had a poor season.

At international Scandinavia had a second year of weak snow coverage, and so the industry is down low-double-digits season to date with BRP retail slightly below the industry.

Moving to our personal watercraft performance in the quarter season to date, the North American industry is up low-single-digit with Sea-Doo retail sales tracking with the industry. We had a great season 2014 last year with industry up about 20% and, because we are expecting another good season, we started manufacturing earlier this year.

The Spark continues to pull new consumers to the category with a value proposition that is unique in the industry and, as such, we are increasing our availability of the Sea-Doo Spark in fiscal year 2016. We will continue to strategically position the Sea-Doo Spark units in the sales channel here and abroad.

We are also on track to produce approximately 50% of traditional watercraft in Mexico in fiscal year 2016, reaching 100% by the end of fiscal year 2017. The financial benefit of the transfers are muted by the fact that we are transitioning with production at two locations this year. We are nonetheless on target for absolute margin improvement of between CAD20 million and CAD25 million by fiscal year 2017.

Now turning to model year 2016. A month ago hosted our club Ski-Doo and introduced a solid line up of snowmobiles highlighted by: the Renegade Enduro model, a sled that is inspired by an adventure motorcycle, to deliver all around capability wherever it is being taken; the Summit Burton Edition, a sled that is appealing to snowboarders and skiers looking or easier access to the back country; the 1200 4 stroke engine option on the [XS] chassis extending the availability of the intelligent throttle control technology with its three driving mode; and finally the MXZ Blizzard snowmobile with a 129 inch track and excellent value available all in season.

We also introduced new technology such as the industry first adjustable ski, the Pilot TS, a redesigned ski providing riders the ability to instantly adjust ski bite for changing snow condition and riding style. The new Pilot ski comes tendered on seven models and is available as an accessory which we believe will be very popular.

Slide 10 -- our Propulsion Systems revenue grew by 44% in the quarter to CAD108 million directly impacted by the ramp up in deliveries of the Evinrude E-TEC G2. It is still early but the North American season kicked off with attendance at boat shows trending positively and continued good reaction to the G2. Seven months into the season the North American outboard engine industry retail is up mid-single-digits while BRP retail sales were up low-single-digits over the same period.

As we mentioned on previous earning calls, the industry growth is mainly driven by an increase in outboard engine sale on new boats versus the [repower] business. As we said in Q3, we expect this trend to continue for the next model year.

Evinrude has traditionally focused on the repower segment, but we are actively working to be more present in new boat segment. I am pleased to report that we have signed 20 boat builders in North America and two at International since the G2 launch and we have signed 78 Evinrude dealers in North America and eight at International in the past year. We are also working with both OEM partners to facilitate the integration of the G2 and color matching option for future model year.

Finally, on Propulsion Systems, we continue to work with Chaparral and Rec Boat Holdings in North America to distribute our jet propulsion system and we continue discussions with other boat OEM brands.

On the Part, Accessories and Clothing side, the overall business was up 2% in the quarter. The growth came primarily from FX and from snowmobile-related vehicle parts, accessories and clothing in North America and this was offset by lower sales of snowmobile PAC in Scandinavia and Russia.

We just introduced our model year 2016 snowmobile lineup and our offering is solid with the Pilot TS ski, an innovative quick adjust [limiter] strap on the Summit models and a wide selection of riding gear.

Before turning over to Seb, just an update on our objective to optimize our dealer network in North America. We added a total of 76 new dealers in fiscal year 2015. That added to the 38 from last year brings the total count to 112 since the objective was introduced. Moreover, we expanded the North American side-by-side and roadster dealer coverage by 10%.

We are continuing on this momentum with the target of signing between 75 and 85 new dealers in fiscal year 2016 with a goal to add between 200 and 300 new dealers by the end of fiscal year 2017. And with that I will turn the call over to Seb and will return for closing remark and an outlook. Sebastien?

Thank you, Jose, and good morning, everyone. This morning we reported revenues of CAD1.068 million for the fourth quarter of fiscal 2015, an 18% increase from the fourth quarter of last year. As indicated by Jose, for the 12 months ended January 31, revenue has amounted to CAD3.5 billion, a 10% increase over fiscal 2014. Our gross profit amounted to CAD289 million for the quarter resulting in gross margins of 27.1%, an increase of 240 basis points over last year.

Normalizing for elements, most notably the CAD112 million loss on our US dollar-denominated debt, normalized net income stood at CAD116 million, an increase of CAD68 million compared to the same period last year. Normalized EBITDA amounted to CAD199 million and normalized diluted earnings per share is CAD0.98. For the full year normalized EBITDA amounted to CAD421 million and ended at the higher end of our guidance and normalized EPS at CAD1.65 is above our guidance.

Foreign-exchange rates were quite volatile in the quarter with a material appreciate in the US dollar, and this drove the majority of the CAD12 million foreign exchange gain recorded this quarter from the revaluation of balance sheet items. And it impacted our EPS by CAD0.07 per share in the quarter.

In the fourth quarter we also benefited from a reduced tax rate as a result of newly enacted laws which impacted EPS favorably by an additional CAD0.03. So when you consider the foreign exchange gain and the tax rate changes, EPS was impacted favorably by a total of CAD0.10 this quarter. You might recall that the Q3 tax rate also benefited from the retroactive application of newly enacted rates, so therefore bringing the total impact on EPS to CAD0.05 for the full year.

Turning to our revenues by product categories and geographies on slide 15. Revenue growth was very strong for Year-Round Products and Propulsion Systems this quarter and new product deliveries were a big driver of the revenue increase. Also for [ORVs], with our dealer order management system we saw a shift in dealer demand from Q3 to Q4 and this also increased revenues in the quarter.

Despite a very volatile Russian ruble, our snowmobile sales to our Russian distributor ended better than plan. On the PAC side poor snow riding conditions in certain parts of the world hurt overall sales and resulted in annual revenue slightly below guidance. The breakdown by geography was 53% of our sales this quarter from the US, 17% from Canada and 30% from International.

Normalized net income bridge on slide 16. Normalized net income increased by CAD68 million as a result of the following items: volume and mix, pricing and sales program had a net positive impact of CAD59 million; production costs and operating expenses were a favorable CAD14 million, and these were partly offset by higher income tax expense compared to last year for CAD21 million and higher depreciation charge for CAD4 million.

As I talked earlier, foreign-exchange impacted our results favorably this quarter and even more so when comparing to last year where we reported an FX loss. This resulting in a year-over-year variance of CAD20 million.

Moving to balance sheet items. Our cash position ended at CAD232 million; working capital, defined as current assets less current liabilities, increased in fiscal 2015 compared to 2014 driven mostly by a higher cash balance. Currency impact on our US dollar-denominated long-term debt resulted in a CAD145 million increase and we had no drawings on the revolver at year end.

CapEx increased CAD19 million compared to prior year for a total amount of CAD172 million, within our guidance for the year. Free cash flow was very strong in the fourth quarter and this resulted in CAD203 million of free cash flow for the year ended January 31.

Now slide 18 for a look at BRP's power sport dealer inventory for North America at the end of January. Dealer inventory is up 15% for the fourth quarter versus fourth quarter 2014 levels, and this is due to higher snowmobile inventory levels compared to an all-time low last year and higher PWC inventory for the upcoming season.

We started shipping newly introduced products this quarter, ahead of the spring and summer retail season. We consider our inventory levels in the network to be adequate.

Now for our guidance for fiscal 2016 on slide 19. For the year we are expecting revenue growth and total Company revenues up 5% to 9% driven by a 7% to 11% increase in Year-Round Products. Excluding FX, factors that are contributing to the increase in revenues are new model deliveries in all product categories, the expansion of our North American distribution network and our marketing efforts to increase brand and product awareness.

As we are not in the largest segment of the SSV industry, the utility segment, we are not fully benefiting from the mid-double-digit SSV industry growth expected this season.

For our Seasonal business fiscal year 2015 was a great year as we benefited from two key factors: one, an exceptional year for snowmobile deliveries in North America driven by a strong line up, a healthy industry and replenishment of dealer inventories; and two, strong PWC results with the success of Spark especially in the second half of the year as we ramped up capacity and deliveries in anticipation of the upcoming retail season.

These two elements were offset in part by lower deliveries of snowmobiles in Russia. Therefore, for next year we are planning revenue to be flat to up 4% in Seasonal Products. We are planning for reduced snowmobile volume in North America and a further volume decline in Russia as our distributor was impacted by weak snowfall and continues to be impacted by the overall economic condition.

As for PWC, the outlook is positive and the upcoming retail season will provide further insight as to the full market potential of Spark. Propulsion Systems revenues is planned up 7% to 10% as we continue to build the momentum of the Evinrude G2. And we are planning a 10% to 15% increase in our revenues from PAC.

Normalized EBITDA is forecasted to grow between 6% and 10%. Our effective tax rate is expected to range from between 27% to 29%, up from 22% last year. The increase in tax rate is driven by the retroactive tax adjustment experienced in fiscal 2015, but also by a forecasted higher mix of profit from countries with a higher tax rate.

Depreciation expense is forecasted to increase by CAD22 million to CAD135 million as a result of investments in the last few years in product innovation and manufacturing footprint expansion. Compared to fiscal year 2015 net income is planned to be down 9% to flat.

Adjusting for fiscal year 2015 tax rate, which ended at a low of 22%, normalized net income growth will be between flat to up 7% when using the same fiscal year 2016 tax rate applied to both years. Finally, this results in normalize diluted EPS guidance of between CAD1.50 to CAD1.65.

We have also provided you with a forecast of capital expenditures for the year of between CAD200 million to CAD220 million versus last year. CapEx is impacted unfavorably by approximately CAD15 million due to foreign-exchange next year.

Turning to slide 20, we are comparing our tax rate of 22% in fiscal 2015 to our fiscal 2014 tax rate of 25% and to historical rates from prior years. For fiscal 2016 and onward we expect consolidated income tax rate to increase to the range of 27% to 29%.

As mentioned before, this increase is driven by a higher mix of profit from countries with a higher tax rate and to a lesser extent by the CAD0.05 benefit of the retroactive tax laws enacted in fiscal year 2015. And so therefore when adjusting fiscal year 2015 EPS to the guided 27% to 29% tax rate, the implied normalized earnings per share growth is flat to up 7%.

Turning to slide 21, we are providing you with an assessment of expected profitability distribution throughout next year. As such, based on our forecast we are planning a slightly better profit distribution between the first half and second half; however, similar to fiscal 2015, we expect a stronger second half.

And finally, our exposure to currencies on slide 22. You might recall from the IPO that in our procurement strategy we attempt to hedge the exposure to the US dollar and the euro by having a cost base that matches the currency of our revenue. As a result for fiscal 2016 we are slightly short the US dollar, the euro and the Mexican pesos and we have long positions in several export markets, most notably the Scandinavian countries.

Based on current exchange rates the expected impact on fiscal year 2016 is a positive 500 basis points on revenues but a negative 100 basis points on gross margins. As the pricing of most of our products is benchmarked to the US and most of the regions we serve, we do view favorably the appreciation of the US dollar long-term.

This concludes my remarks and I will turn the call back to Jose.

Thank you, Sebastien. The year clearly turned out more volatile than we anticipated with several externalities to cope with, but we still of course kept the focus and delivered on our objectives. We grew sales in all product categories, grew revenue from the international market despite Russia. Exceeded our objective for new dealers in North America and launched several exciting products with significant volume potential.

Our history suggests that our EBITDA distribution will typically be 40% in the first half and 60% in the second half, but we ended up fiscal year 2015 with a 20/80 split. Factors such as the timing of major product introductions, weather conditions or currency exchange rates will bring volatility in our earnings distribution. And fiscal 2015 was a perfect combination of those three factors.

I certainly prefer a smoother earning distribution over a backend loaded profitability. But we experienced those splits in our history and in the past two years and, most importantly, we delivered on our commitment.

So to summarize, our execution resulted in a strong financial performance for fiscal year 2015 and we have good revenue and earnings growth expected next year and beyond. We have a lot of new exciting products in the pipeline which we will introduce all year long and I look forward to continue growing BRP into the future.

Thank you again for your support and we will now take questions.

So, Sebastien, we are now ready to take questions. So if we could ask our participants to only ask a few questions at a time and return to the queue so that we get the questions from the most people. Thank you.

(Operator Instructions). Steve Arthur, RBC Capital Markets.

Just wanted to follow up on one of your latter points there just in terms of the EBITDA weighting into fiscal 2016. I understand that is a normal pattern, but to the degree of it in fiscal 2016 surprises me a little bit. I would have thought with all the recently launched products contributing to the first half that it might've been closer to that 40/60. Any color on why that is a heavier weighting again in the back half into 2016?

But we saw some change this year, Steve, and we believe next year -- with our planning that we have right now, we believe that 2016 will be similar to 2015 again. There will be a lot of new product introduction throughout the year.

That with the timing of those new products and with the ramp-up of watercraft in Mexico for -- because the full production will be in Mexico starting that fall, the [URAs] ramp up -- the URAs to ramp-up for a new off-road segment. Then with all of those elements together we believe that we are planning our distribution H1-H2 similar to 2015.

Is the Juarez II contribution in fiscal 2016 a meaningful part of that?

Again we are going to be starting production late Q4, so it should be more a cost than a contribution, because we will have start-up costs. So until we are fully ramped-up it will take a few months. So Q4 next year will be more of a cost than a benefit.

Okay. I guess just looking at some of the -- final question just looking at some of the products specifically in Year-Round that were contributing in the quarter. It looks like you had a lot of growth and a lot of strength in Q4. Just wondering about the F3 in particular, it launched in the quarter, some shipments at quarter end. We are now, I don't know, two-thirds of the way into Q1. Any color on how those orders or shipments have been proceeding and the dealer reception so far this quarter?

Like you said, we started shipping the F3 in January in North America followed by international. So far we are very early in the season. The dealers in North America had the product for -- since mid-February and international they are just receiving the product now. But overall very, very good media and review. Very pleased with all the review that was done.

We starting to have some customer feedback. We have done a survey with a few customers that are owning right now an F3. The customers are pleased. Our statistic on the satisfaction versus -- is very high, that overall very, very good feeling about the F3 potential but very early in the season.

Okay, thank you. I will pass the line for now.

Benoit Poirier, Desjardins Capital Markets.

Just for -- my first question is related to the CapEx increase for fiscal 2016. So obviously once you strip out the FX impact it is still a good increase from last year levels. So I was wondering if you could provide more details whether the CapEx increase is related to a specific category or the introduction of more products across several lines.

Yes, I won't necessarily comment on which product line the CapEx is being allocated to. Yes there are some infrastructure projects next year as well but we are still heavily investing in product innovation. Again, with the breadth of product lines we have we will have a good product pipeline announcement for this year as well and that is what is going to be driving a lot of the CapEx increase, Benoit.

Okay, perfect. Thank you very much. And just for the Russia, could you provide more color on the assumption with respect to the currency? Because it has been reversing, so in a positive territory over the last few months. So just wondering what type of level were you -- are you currently forecasting for fiscal 2016?

We were a bit surprised, Benoit. If you remember, about the week after our call in December the ruble dropped drastically reaching about 85 ruble by euro --.

Exactly.

-- for a period of about two weekends. To be honest I think nobody could have predicted the reaction of Russian consumers, but instead of stopping them to buy they rushed to buy luxury goods -- to buy it at a lower price because they were imported at a lower cost than RUB85 per euro.

Then what happened is our dealers in Russia were surprised. They had very, very good retail in December/January and we replenished dealers with product more than what we had anticipated. Then this is in a nutshell what happened, I don't think nobody could have predicted that.

This year we ended up at the end with a 25% reduction. And for this year, fiscal year 2016, we're planning 50% compared to what we had in fiscal year 2014.

Okay, okay perfect. And maybe a third question. Just in terms of inventory level, you mentioned very good color about the reason for the increase. Just wondering what could be the implication in terms of the overall margins.

Should we expect maybe a higher discount especially given the higher inventory level? But also given the upcoming introduction of new product? So just wondering whether it should translate into higher discounts for fiscal 2016?

Well actually, Benoit, in terms of inventory level we are very comfortable with the inventory level today that we have. One of the big drivers of the increase year over year is snowmobile inventory levels in North America. Despite the bad snow conditions out West the inventory levels are comparable to our historical inventory levels that we have had in North America.

So we are back to normal inventory levels for snowmobile. And the other element which drove a bit more inventory is we have delivered Spark in anticipation of the retail season. And so those are the two big drivers.

So we are not -- our inventory levels for ATVs, when you exclude the new models and all that, the standard models are lower for SSV as well. So there is no level of [incomfort] and a need to push more sales program in the network in the near future in order to liquidate that inventory.

Okay, perfect. Very good color. Thank you.

Gerrick Johnson, BMO Capital Markets.

I just wanted to follow up on Benoit's question about channel inventory. I wonder if we could look more closely at that and if we could get a comparison of prior-year channel inventory, how it looks if you look at 2014 offered vehicle models this year versus 2013 and earlier last year, and in 2015 snowmobiles versus 2014 last year. Thank you.

Gerrick, the inventory in North America is 15% higher than last year, but let's see if we try to give you some color. One-third of the 15% is for off-road vehicle, and in there there is Outlander L entering in the mid-cc and Spyder F3. And two-thirds is on Seasonal Products split about half and half. One-half is snowmobile; again, normal inventory for a normal winter. Higher than last year, which was exceptional, but normal. And the other half is watercraft, mainly the addition of the Spark.

Okay. Okay, moving on. Arctic Cat was pretty aggressive with snowmobile promotions in season and now with off-road vehicles. Do you think this has had any impact on your business?

If you remember, we had the highest spring break sales in model year 2015 ever, and some of our competitors started to discount their units in December and we didn't follow. We did follow mid-January out West because of the snow situation, but we never had really program in the East where snow condition was good.

For the off-road vehicle, so far we don't believe that this is affecting our retail so much. We are playing a bit -- we are more in the high end product category, and so far we don't believe that this is affecting our retail.

Okay, that's good. And then you had nice dealer growth in North America. But I am wondering are you finding deeper penetration of your line with existing dealers, meaning are those dealers taking more of your product segments?

Well, in terms of dealer coverage as we saw in the script or in the presentation, we had a good increase in overall penetration of the Year-Round Products, let's say line or take rate, from existing dealers. So yes, that is one of the big drivers as well of our growth.

We are seeing a 10% increase in the Spyder and SSV network coverage compared to a year ago. So that is not only driven by the 76 that we have signed, but also by existing dealers taking our lines. And when you look at the existing 76 -- or the 76 dealers that we signed this year, 95% of them actually took an [EORV] line. So we are extremely happy with the penetration that we are getting.

Great. Thank you, Sebastien.

Anthony Zicha, Scotiabank.

Jose, could you give us a bit more color in terms of promotional activity for the first quarter and your expectations for the second quarter? And the other part is, when you look at your dealers you have increased the number to 76. Can you give us a bit of a geographic breakdown?

And have some of these dealerships had some challenges with reference to lower oil prices? We have seen consumer confidence go down in Alberta, I am sure it is the case in the Western US. But have you seen any evidence of this?

Okay, let's start with the promotion -- what is going on with the promotion. We are at the point in the season, you know most of the summer products will end their season end of June/July. And you could see at this time of the year some OEMs being aggressive. But so far I would say except maybe for one, so far the -- I would say the promotion activity, I would consider it normal.

And typically you will see aggressive promotion coming out more in April and May and the back end of the season depending on an OEM's situation and his inventory. Then so far I would quote the promotional activity like normal.

In terms of the dealer, just to come back on the dealer. We are very happy because the focus of our new dealers -- out of the 76, about half were in the South and Southwest, which is only 13 state in the United States. And we are happy with the distribution that we took.

Maybe there is one thing that I would like to add. We have done quite -- we have had a dealer in the last two years now, but the ramp up is a bit longer than what we had thought. If a dealer takes a line in an existing store it can be up and running within six months. But if a dealer extends his building or builds a new building it can take 18 months. And I would guess our average is about a year.

Then between the time that you sign the dealer in average it takes 12 months that the dealer is up and running with product in his show room and the staff is trained and the sales is happening.

Okay. And with reference to lower oil prices, it is clearly impacting Alberta, most probably also Western US. So have your dealers seen any evidence of that?

Yes, sorry I forgot that last question. Yes, we see mainly as that is slowing down -- all the West and Canada are slowed down. It is reflected into the snowmobile order that we are receiving. For them it is a double impact. They had the weak snow season and on top of it the economy out West is so slow.

Then -- but all of this right now is factoring in our guidance for the snowmobile because we have pretty many orders on our hands. And also because the -- adjusting now their orders on a monthly basis on all the off-road vehicle it is also reflected in the guidance.

Okay, well, thank you very much.

Robin Farley, UBS.

Hi, thank you for the taking the questions actually (inaudible) for Robin. So in terms of guidance of 7% to 11% shipment growth in the Year-Round Products, could you perhaps breakdown side-by-side expectations in that segment? Also any broad commentary you could give on the retail environment since start of the year and especially through March would be extremely helpful in terms of off-road. Thank you.

Yes, I will take the projection and I will have Jose give you some color on the retail for SSV. As I have mentioned in my remarks, the SSV industry is growing at a very good rate. However, when you look at our product portfolio in the SSV segment, we are not covering all of the segments.

And one of the segments which we are not covering is the utility segment which is one of the largest segments, about 60% of the overall industry. And also one of the fastest-growing segments in the industry.

So our projections for Year-Round Product growth is impacted by the fact that we are not necessarily in those high-growth segments in the SSV industry. And therefore our forecast deliveries is lower than the forecasted industry growth for the segment. And I will have Jose cover the retail performance.

Maybe also to add to Sebastien, in Russia obviously the biggest product that we're selling there is snowmobile, but we sell quite a lot of ATV and side-by-side. In Scandinavia where the economy is also soft we're selling quite a lot of ATV. And those two regions are definitely slowing down versus what we had planned last year and slowing down the growth in the Year-Round Product.

On the promotional side I would say at this point the situation -- I would consider it normal worldwide. We have good momentum with the mid-cc ATV category. We're doing well in US, a bit slower than plan in Canada because mainly what is happening out West, but better at International.

Then our momentum and the mid-cc category is I would say globally worldwide on plan. On the side-by-side, like Sebastien explained, we're playing right now with the Commander and the Maverick families only in 40% of the segment and it's definitely that something we're trying to resolve in the near future.

On the Spyder front we're planning this year a good retail growth with the addition of the F3. But if you remember, we wanted to reduce our -- we finished model year 2014 with a bit too much inventory at the dealer level and we wanted -- our plan is to slightly reduce the inventory in the network at the end of the year. Then we're planning our retail a bit higher than the wholesales during fiscal year 2016 and all of this adds up to the 7% to 11%.

Thank you very much.

Derek Dley, Canaccord Genuity.

Just looking at the international market, have you been able to replace some of the sales that had gone to Russia into other markets?

If you remember, the Russia situation started in -- I would say in fall. We have been able to ship some units in Canada -- mainly in Canada and some in US, but not too many out of the order because the Scandinavia market is different. Scandinavia and Russia markets are a different sled than what we use in Canada. And everything we could we have bring them in North America, but most of the inventory have stayed there.

Okay, thanks. And is Russia still your biggest international market outside of -- well, outside of Canada and the US?

Forecasted 2016, again we are looking at a 50% decline from fiscal year 2014. So we will have other big markets such as Australia, Brazil that will be fairly close to what we are seeing in terms of numbers in let's say we will call it Western Europe which is not a country but a region which will be material as well.

Okay, great. Thank you very much.

Cameron Doerksen, National Bank Financial.

I guess a question on the capital allocation strategy you've announced to an NCIB. I'm just wondering if you can talk about the thought process behind that. Was any consideration given to a potential dividend? And how do you think about the leverage? Do feel like you are comfortable there or is there I guess the next few years a plan to reduce that?

Yes, good morning. I mean capital allocation is a recurring topic that we have at the Board. When we look at our balance sheet and when we look at the overall power sport and we will call it big-ticket item discretionary sector leverage is zero or minimal.

So as part of those discussions we have with the Board we look at, well, what are the potential returns that we can generate to invest in capital. We have a lot of organic growth projects internally. We look at our debt situation. I will just remind you that our debt conditions are very favorable maturing only in fiscal year 2019 with covenant light at a low cost of 4% all-in costs. So when you after tax that it is only 3%. So paying down debt today is not necessarily something that is a high priority.

However, when we looked at where our stock price is trading and the potential return it could bring to shareholders by buying back shares, we believe that having the option to buy back shares this year could be a good alternative to give good returns to shareholders. And that doesn't mean that we are looking away from a dividend. However, I think we need to strengthen our balance sheet and delever the business before we start thinking about a dividend in the near future.

Okay. Maybe just a second question on margins. I mean the guidance sort of implies roughly 12% EBITDA margins to be kind of flattish. And obviously you've got some headwinds here with foreign-exchange; you're ramping up some new facilities in Mexico so there are some headwinds.

But can you talk about, if we look beyond fiscal 2015, what the margin profile looks like? I mean, how do you narrow the gap between yourselves and what some of your peers have which is higher margins?

Yes. For sure, FX has been impacting us and we have lost 200 basis points if you compare 2015 to 2014 and then 2016 to 2015. So that is a big hit. And also last year and this year we are transitioning to new manufacturing facilities. So all the cost improvements that we are building into our product design is being offset by some of these initiatives.

So we are extremely focused on improving margins over the long-term and such initiatives as the transfer of PWC to Mexico will bring improved margins, but that will be in fiscal year 2017. And that is, again, part of our ongoing strategy.

Yes, we want to focus on increasing top line and that is going to be a big driver as well of improving margins because your asset utilization is much better. But also improving the way we build products and the cost of our products will also be an important driver of that margin growth.

Okay, perfect. Maybe just a last little quick one just on the PAC up 10% to 15% in the guidance. That seems pretty strong. Is there any specific driver of that?

Well, we have an aggressive PAC strategy or a strong PAC strategy where we want to increase the dollar per unit of PAC sales. We have had successes in the past, as you have seen our results in our PAC sales grow, and that is going to be continuing next year as well.

We have a dedicated PAC sales team that are focused on increasing our PAC penetration rate at dealers and they have key metrics that we follow to make sure that we achieve those targets. And so, these are the drivers that are -- as part of the retail and the top line growing. We also have some very effective go-to-market strategies that will bring that top-line growth as well.

Okay. Thanks very much.

Mark Petrie, CIBC.

Good morning. Just a couple quick follow-ups actually. So, on the ramp-up of the PWC down in Queretaro, so that is CAD20 million to CAD25 million. And is that in fiscal 2017 where those savings will be realized?

Yes, that is going to be in fiscal 2017, Mark, that we'll be seeing those savings come in.

Okay. And then in terms of the actual revenues coming out of or resulting from production out of Juarez II, will we actually see any in Q4 of fiscal 2016 or is that a ramp up in 2017 (technical difficulty)?

You will see a bit in Q4 of this year and the ramp up is going to be happening in 2017. But, yes, we will be delivering units, finished goods out of that facility this year.

Okay. And then just in terms of FX. I mean the positioning sort of -- or some of the commentary that we have heard from you generally speaking is net hedge over the course of a year. But it does seem that it is going to be having, again, a pretty significant impact in terms of fiscal 2016. Is a lot of that timing and just sort of lapping some of the moves? Or how should we think about the FX positioning from a natural hedge perspective going forward?

Well, we will continue -- we believe that in the long-term that is the best strategy, because you could do, again, some forward to contracts, but you are always 12 months let's say behind the increase. Having cost and offset the revenue in the various currencies for us is the best strategy -- despite the fact that it hurts the margin. But on the economic side on the cash side it produces the best results and protects us the most.

And so that is a strategy we have had in the past, a strategy we are going to continue having. We are going to refine it for sure. We are going to be looking at certain exposures, how to better manage it because, as you know, certain countries where we export we have very little cost but a lot of revenue. Can we do a better job of managing that exposure? We will look at it.

But when you look at the two big currencies for us is the USD where we have a lot of revenue and a lot of cost, and the euro where we do have some good revenues but also some cost because of our manufacturing plants in Europe. And so for us that offsetting strategy is the best strategy despite the fact that, okay, if the US dollar continues going up is it going to be impacting margins negatively.

But as I've said, if the US dollar continues going up, as the US is a benchmark for pricing around the world, we feel it is good for the overall business.

Okay, and that was sort of actually my just follow-up. In terms of the Canadian dollar, obviously you guys have a reasonable amount of your costs in Canadian dollars. How do you think about pricing within North America?

The US market is still the biggest market in the world for recreational product. Then it is somewhat the difference country for pricing. And we need always to manage cross boarding shopping between countries and this is true between US and Canada, but is also true in Europe where countries that they don't use the euro currency.

Then typically you keep a 10% gap between your Canadian pricing and your US pricing adjusted for the currency. So far we saw some of our competitors increasing their pricing in Canada, that is an opportunity for us. But obviously this is something that you see more long-term and it will take a few years.

If the US dollar continues to grow -- to gain in value versus the Canadian, you will see pricing in Canada going up. But it is something that is not happening overnight, it could take a year or two or three years to follow the currency fluctuation.

Okay, thanks very much. Best of luck.

Craig Kennison, Robert W. Baird.

Good morning, thank you for taking my question. Most have been addressed, but I will follow up on the share repurchase plan. Does your guidance include any share repurchase activity or would that provide upside? Thank you.

The guidance does not include any share purchase activity. So it is based on a constant share count as where we ended in fiscal year 2015, so 118 million shares. So today it is on a constant share basis.

Thank you.

Martin Landry, GMP Securities.

So just going back to your Q4 results, they have come in higher than your revised guidance that you gave in mid December. It would suggest you've had a strong January. Can you talk a little bit about what came in better than anticipated? Was it related to your -- the change in the dealer patterns?

Good morning, Martin. Yes, when you look at the results, especially on the EPS side, we did come very strong and on the EBITDA as well. However, there is two things which impacted our results which are I will refer as externalities.

The first one is the FX from the revaluation of the balance sheet, the working capital elements on the balance sheet. That resulted in a gain of about CAD12 million. So when you strip that out and remove that that is about CAD0.07 on the EPS and about CAD12 million on the EBITDA.

And also the tax rate. We had announced -- we had reduced our guidance on the tax rate when we announced the results in Q3 coming from retroactive changes in tax laws that happened in Q3. But new changes also happened in Q4 which impacted our EPS for an additional CAD0.03.

So when you strip out these elements, CAD0.10 on the EPS and about CAD12 million on the EBITDA, we are kind of within the midrange of the guidance. And therefore nothing extraordinary happened in the quarter which made us miss or come in higher or lower than expected. As Jose mentioned, Russia was a bit stronger than what we had expected. However, that was offset by lower sales of parts and accessories.

Okay, and just to be clear, the CAD0.10 you are talking about, is -- that is not excluded from the CAD0.98 you reported?

No, it is not excluded.

Okay. And then lastly, on the side-by-side you do mention that you are not in the utility segment. Any chance you'd give us some color on how you are faring in your addressable market? Meaning how are your retail sales doing versus industry and the markets you are targeting?

Yes. The commander played into what we call the [Rec-U] vehicle, you can use for recreational or utility activity with bucket seat. This segment is slowing down slightly and we are maintaining our market share. On the sport category, this segment is growing and so far we're maintaining our market share.

The Maverick Xds and Xds Turbo were shipped a bit late, to be honest. I think our team have done an incredible job to develop those high-performance vehicles. But in an ideal world we'll have shipped them maybe two years -- two months before. They arrive in large quantity in January and so far we hearing good things.

And basically we maintaining our share in those two segments that we are in. We believe the Maverick Xds and Xds Turbo could get some momentum, but the disproportion of the utility versus the [rest] is really causing the market share loss when you look at the overall industry.

Okay, thank you very much.

Tim Conder, Wells Fargo Securities.

Good morning, this is actually Mark (inaudible) in for Tim. Just as a quick follow-up to the FX and pricing questions. So are you actually using the Canadian dollar all to your advantage to gain share in the US? And then could you also provide any additional color on hedging for 2016? How much are you hedged and at what levels?

Yes, in terms of leveraging the Canadian dollar for US pricing, no. We look at it as two very distinct markets and the demand for the markets are different and consumers are slightly different. And therefore we are not taking let's say the potential lower cost from the Canadian dollar when you convert it to US to reduce pricing and gain share. We are respecting the pricing and the market conditions that are there.

As I have said, again, when we look at our overall FX position we look at it globally within the Company. And so, yes, we are benefiting from a strong US dollar on the top line. But because we have a good amount of cost in that US dollar, it doesn't mean that the margins are increasing as there is an offset that is occurring there.

And in terms of hedging strategy, today the currencies that we are actively hedging with forward contracts are the AUD, the SEK and the NOK. We do have a policy that allows us to hedge not more than 60% of the next 12 months and at least 25% for the next six months. So we are within these guidelines, I'd say we are probably at 30% for the SEK and probably the same range for the NOK. And the AUD also probably in the same range in terms of overall hedging.

Okay, great. And then do you have any updates on the pending regulatory issues with [CPSC]?

We continue -- all the OEMs continue to collaborate together through the (inaudible) Association and we are in discussion with CPSC. Discussions are going on -- nothing to update at this point. But we are confident -- we are following that closely obviously and we are confident that we can meet any new regulation that they can come with.

Okay, great, thank you.

Benoit Poirier, Desjardins Capital Markets.

Just to come back on the Spark, if we look at the industry, it was kind of low-single-digit early in the season while the Sea-Doo was overall flat. I was kind of expecting you to gain market share just because of the Spark. So any color on those numbers so far?

Right now don't forget that we started to deliver the Spark in September 2013. And when we introduced the vehicle we already had produced units and we shipped to the dealer very quickly and we had a very good response from day one on the Spark.

But what happened last year, Benoit, we -- because the demand was bigger than what we had planned we extended production from the end of March till the end of June. That give us the additional volume.

This year, because we're planning the industry to be at least what we had last year, we started to ship a bit earlier in this year in fiscal year 2015 to finish -- to plan finish production in march to give us the opportunity again to increase production if the retail is there.

But at this point it is a very low number. We probably have 5% of the retail of the season done and right now the industry is flat versus last year.

I see, okay, okay, very good color. And is the mix between traditional and Spark mostly in line with the initial expectation, Jose?

So far, yes.

Okay, very good. And last question, just with respect to your guidance, does it assume the new product introduction that we might see this year?

Yes.

Okay, thanks again.

Thank you. There are no further questions at this time. I would like to turn it back over to Mr. Bosse.

Great, thank you very much, Sebastien. I want to thank all of our participants to today's call, wish you a very good day and we will talk to you when we report first-quarter results in June. Thank you very much and you all have a very good day.

Thank you. The conference call has now ended. Please disconnect your lines at this time. We thank you for your participation.