BRP Inc (DOOO) 2016 Q2 法說會逐字稿

(Spoken in French) Hello, ladies and gentlemen. (Spoken in French) Welcome to BRP Inc.'s FY16 second-quarter financial results. (Spoken in French) The call is about to begin. I would now like to turn the meeting over to Mr. Philippe Deschenes. (Spoken in French) Please go ahead.

Thank you, Maude. Good morning and welcome to BRP's second-quarter results conference call for FY16. Joining me on the call this morning are Jose Boisjoli, President and Chief Executive Officer, 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 reference will be made to supporting slides which you can find on our website at BRP.com under the Investor Relations section. With that, I will turn the call over to Jose.

Thank you, Philippe. Good morning, everyone. Let me start by reminding you that Q2 is always the lowest quarter for BRP. Q2 2016 was no different. Despite significant volatility and turbulence in the market, our top-line results ended as expected. However, thanks to our tight management of expenses and lower sales program our bottom line is slightly better than plan. I will come back on this subject in a few minutes.

Although the global economy remains uncertain the US market is solid and European markets have performed better than expected. Emerging economies, especially Russia and Latin America, remain unstable and continue to underperform. The devaluation of their respective currency and the serious threat of inflation occurring on the horizon had a negative impact on the business. We also saw a slowdown in the Canadian economy as Canada was recently declared in a technical recession, the second since 2008. Even though it has been a challenging quarter from our year-round product retail point of view we are pleased to extend slightly ahead of our expectation entering in the second half of the year and we remain focused on executing our plan.

Now let's go into the review of the quarter with a look at the financial result on slide 4. We achieved revenue of CAD812 million, a 4% increase over last year. Unit deliveries were similar to last year and revenue growth mainly came from favorable foreign exchange variation. On the profitability side our gross margin came in above last year, improving by 260 basis points. The improvement was in part due to good execution resulting in lower production costs and expenses, and we were able to achieve efficiency gain during the quarter.

We also benefited from lower sales program costs which is the result of softer retail than plan in year-round product, though saving are expected to reverse in the second half, as we have strengthened our sales program for the fall. We'll give you more call on the industry in a few minute. The gross margin helped achieve a normalized EBITDA of CAD53 million and a normalized diluted earnings per share of CAD0.03.

Now moving to the business highlight on slide 5, our revenues from North America grew by 4%. The growth was driven by favorable foreign-exchange rate variation, offset by a weaker Canadian market for which our revenue were down 10%. Our retail sales in North American for both seasonal and year-round product increased by 2% for the quarter. As I mentioned earlier, our retail performed below our expectation for year-round products. We had strong retail growth for personal watercraft but we had a weak quarter on the Can-Am side, especially for Side-by-Side and Spyder.

On the international front, despite unfavorable foreign-exchange fluctuation, with continued weakness in Russia and Latin America, revenue increased by 4%. The growth was primarily driven by good demand for our product in Scandinavia, Western Europe, and Asia-Pacific.

On the operations side, some of our new 2016 off-road model have recently hit the market. On the ATV side, shipment of the Can-Am Model Outlander L with the newly introduced 570cc engine started late in June and will ramp up in the third and fourth quarter. As for side-by-side shipment of the base model, the Maverick Turbo, with a more competitive price point, started in August. We also have made good progress in the construction of the Juarez II facility. The building is completed. We already have assembled prototypes and ramp-up will start late fall. The project is on plan and on schedule.

Now turning to our year-round product category highlights, our revenue were about flat as slightly lower wholesale volume and unfavorable product mix were offset by favorable foreign-exchange rate variation. Looking at our retail performance, the North American ATV season just ended on June 30 and we are pleased with the Can-Am performance. The industry ended the season flat and Can-Am was up low single digit, slightly outpacing the industry. But what is more impressive is that when excluding the youth ATV, a segment were we reduce our offering, Can-Am was up mid single digits.

On the international front we also have a good momentum with the Outlander L family in every key market. Overall we are pleased with our ATV business and we believe we are well positioned to continue gaining market share in coming season.

The North American side-by-side industry also ended its 2015 season on June 30 and was up low double digits. The season was disappointing for Can-Am as sales were up low single digits. The industry trend remained essentially the same, with growth coming from utility and sports segment, while rec-ute continued declining. We are pleased with the Can-Am performance which saw a retail increased despite that it is competing in a declining rec-ute segment. However, we are disappointed by the Maverick retail which was about flat compared to last season. The competitive landscape is fierce. For 2016 we have adjusted our lineup from an offering and price point of view, and we are confident that we will be able to gain momentum.

Finally, on the Spyder side, the same trend we observed early in the season continued in the second quarter. Nine months into the season the North American motorcycle industry is up high single digit, primarily driven by sport bikes and lower-priced motorcycles. I want to point out that motorcycle category with the price point lower than CAD15,000 grew mid double digit and the one over CAD15,000 was down mid single digits. Spyder retail season to date is down mid single digit, being part of the CAD15,000 and up category that I just referred to.

The Spyder F3, however, continued to perform well, with sales broadly in line with our expectation. F3 is achieving our goal to refresh the Spyder image, and the look of the vehicle is now more fitted as a reason to purchase than the stability of the vehicle. The level of awareness for F3 is only half of what it is for the rest of the lineup but our sales are as expected. Styling has become one of the main reasons to buy and we are talking to a younger crowd. On top of that, customer satisfaction is excellent.

As for the rest of the lineup, our retail sales in North America are below expectations, resulting in higher inventory in the field. We remain positive on Spyder and our team is working on our go-to-market plan for North America for the coming season.

Now let's look at Spyder result outside North America. The F3 and Spyder business in general has exceeded our expectations. Since the cruising segment is not well developed outside of North America we have positioned the F3 as a power cruiser with a high-performance dynamic ride. The segment sits well with the F3 and is well received by consumers. Our network in international country is very positive for the upcoming season.

To conclude on year-round product let me make a comment on the quarterly trend for the off-road industry in North America on slide 7. For the ATV the situation is tough in Canada, especially in the West, and trends are not positive in the US. However, we are pleased with our result because we are gaining market share in challenging environments. For the side-by-side the situation continues to be difficult in Canada. In the US, the industry is up. And although we have limited data we believe the positive trend continue in the utility segment, which had a negative impact in our sales.

In retrospective, our sales program for [noncudin] were not aggressive enough in the second quarter and we adjusted our plan for the fall. Our model year 2016 off-road vehicle have been well received by dealer and consumer and we are positive for the next season.

Now let's have a look at seasonal product on slide 8. Our revenues were up 1% in the quarter compared to last year. Watercraft deliveries were lower than last year but compensated by snowmobile deliveries. We are delivering snowmobile units to dealers who wants to accommodate their spring break buyers. Several of them have made that request in the last few years. The increase was also helped by favorable foreign-exchange variation.

Switching to our retail performance, season to date the North American watercraft industry is up high single digits, driven by Sea-Doo which is up mid double digits. Both the Sea-Doo Spark and the traditional Sea-Doo lineup are performing well, allowing us to gain market share. The same happened in key international market. One of the highlights is in Scandinavia where our sales have increased by 400% because of Spark and the regulatory changes in Norway. After two years we are pleased with the Spark result and our personal watercraft business in general.

During this period, the North American market grew over 30%, attracting new customers. We see the same phenomenon in the international level. Spark has created momentum in the market and at the dealership. Spark is reenergizing the industry.

Now, onto propulsion system business on slide 9. Our revenues grew by 13% in the quarter as we had the stronger sales mix, driven by the deliveries of the Evinrude E-TEC G2 and lower sales program. The North American outboard engine industry ended its 2015 season in June up high single digits. Evinrude retail sales were also up high single digits over the same period, and we gained market share in the 200-horsepower-plus segment due to the introduction of the Evinrude E-TEC G2. We also introduced two new jet drive outboard engines during the quarter. Those engine are a nice addition to our lineup as they excel in shallow water. On the jet propulsion front, another important news is our agreement with Williams Performance Tenders, the world-leading jet tender manufacturer from the UK. We'll start deliveries in 2016.

On the part, accessories, and clothing side, we are pleased with our results. Sales have increased by 12% to CAD155 million. The growth came primarily from the favorable foreign-exchange variation but also from our strategy to develop accessories in parallel to the products. Our focus on accessories for off-road Spyder and snowmobile is paying off.

Now we will ask Sebastien to walk you through our numbers.

Thank you, Jose. Good morning, everyone. This morning we reported revenues of CAD812 million for the second quarter of FY16, up 4% from last year. Our gross profit margin ended at 20.9%, improving by 260 basis points. As Jose mentioned, the improvement was mainly driven by lower production costs, sales program costs and overhead expenses.

Now, normalizing for the CAD72 million loss on our US dollar-denominated debt, normalized net income came at CAD4 million, an increase of CAD13 million compared to the same period last year. Normalized EBITDA amounted to CAD53 million and normalized diluted earnings per share is CAD0.03.

Turning to our revenues by product categories and geographies on slide 13, 37% of our sales came from year-round products, 32% from seasonal products, 12% from propulsion systems, and 19% from parts, accessories and clothing. From a regional standpoint, most of the growth came from the US, helped by the strengthening of the US dollar compared to the Canadian dollar. Canada was down 10% driven by overall weaker industry trends, especially on the off-road side, and by lower demand in western provinces due to more difficult economic conditions.

International was up 4% driven by higher deliveries in Western Europe, Scandinavia and Asia-Pacific. Offsetting the growth was unfavorable foreign-exchange rate variations and lower shipments to Russia and South America.

Normalized net income increased by CAD13 million in the quarter, driven by lower sales programs for an amount of CAD10 million, and lower production costs and operating expenses for CAD22 million. And these were primarily offset by an unfavorable impact of volume, mix and pricing for CAD9 million, higher financing costs and income tax expense compared to last year for about CAD5 million, increased depreciation expense for CAD3 million, an unfavorable foreign-exchange impact of CAD2 million.

Moving to the balance sheet and cash flow update, we ended the second quarter with a cash position of CAD157 million and our long-term debt was up CAD26 million from year-end 2015 mainly due to the strengthening of the US dollar. For the first six months of the year CapEx is up CAD31 million, primarily driven by investments in the new Juarez II project. Finally, we have repurchased about 1.2 million shares for a total of CAD34 million.

Now, slide 16 for a look at BRP's power sport dealer inventory for North America at the end of July. Dealer inventory was up 23% from the second quarter 2015 levels. A substantial part of the growth is explained by seasonal products, with increased snowmobile inventory coming from higher end-of-season levels and earlier shipments this quarter, and by higher Sea-Doo Spark inventory which, as you may remember, was very low or nonexistent at the end of July last year. Besides having slightly more inventory than planned in Spyder and SSV we are comfortable with these inventory levels entering the second half of the year.

And, finally, our guidance for FY16 on slide 17. As Jose mentioned earlier, our results for the first half of the year are slightly ahead of plan and we stand in a good position entering the second half of the year. However, as the year progresses the environment is becoming more challenging. We see more competitive pressure, especially in the off-road industry. And the money we saved on sales programs in the second quarter is expected to be used in the coming months. So, while we are happy to be standing ahead of our plan after Q2 we are expecting the second half to be more difficult than originally anticipated. And overall we are still expecting to end the year in line with our initial guidance.

That being said, we reviewed down our expected depreciation expense for the year and have adjusted certain numbers accordingly. Our year-end guidance now assumes a depreciation expense of CAD125 million, down from CAD135 million. The adjustment is driven by timing in CapEx spend and adjustments in depreciation periods for certain assets.

So, we're still expecting revenues to grow between 5% and 9% and normalized EBITDA between 6% and 10%. But due to the depreciation adjustment, our normalized net income range is being adjusted from down 9% to flat, to down 5% to up 4%. And our normalized diluted EPS guidance range is increasing CAD0.05 and we now expect to end the year between CAD1.55 and CAD1.70.

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

Thank you, Sebastien. In conclusion, I would like to say that I'm proud of our team execution as our factories are running smoothly, the launch of our new products are on schedule, and all key projects like Juarez II and our new dealer addition, are also on plan.

As we can see on slide 19, in this volatile economy market trends vary a lot from one region to another. We are following our plan and will continue to manage our expenses tightly. We are also pleased with our result in each one, but because of the difficult situation in Russia, Latin America and lately Canada, and with the intense competition in the US, we are maintaining our guidance on revenue and normalized EBITDA, but we have adjusted our normalized EPS because of lower depreciation.

In a week from now we will hold our 2017 BRP Club in Nashville. 2,300 dealer representatives and several prospects from 65 countries will attend. It will be one of the best product launch in BRP history. We are excited and we hope to see you there.

We are ready to open the lines for the Q&A.

(Operator Instructions)

Anthony Zicha, Scotiabank.

Jose, could you please provide some moe color with reference to the SSV and the Roadster market excluding the F3 model? And are the Asian manufactures applying more competitive pressure, maybe, in terms of lower price points?

Starting by SSV, there is no doubt that there is more competition in this industry. You saw there is more product introduction on a constant basis into the industry. On top of it, for the Side-by-Side the trend is not helping us. Utility is growing, we are not there yet.

The Spark is growing at the lower pace and we had -- obviously the competition is fear in that category. The rec-ute Is declining and we are gaining market share but in a declining market. Then the overall trend of the industry is not helping us.

On the Maverick side, if I can comment, we came out with the 121 last year a bit late into the fall season. The retail was okay but after discussion with dealers we felt that it was a bit pricey. We had charged a premium for the Turbo. And that's why on model year 2016 we came out with the 131, replacing the 121, at the same price, but on top of it we bring in the base model at a very attractive price. Then we believe right now that in the fall we have the adjusted our sales program and we believe that we will be okay going forward. We are quite optimistic about the model year 2016 season.

On the ATV side, the industry is tougher and we're gaining share with the Outlander L family about everywhere in the world. On the Spyder front, happy about the F3. The media coverage worldwide was excellent. It's clear that we're talking to a younger crowd. And customer satisfaction is very high.

At international level, very, very good performance, exceeding our expectation on F3 and the rest of the lineup. In North America, we are happy with the F3, very close to what we had planned. But the awareness of the F3, despite the good media coverage, is about 50% of the rest of the lineup. Then we are readjusting our plan going forward and we'll continue to build the awareness around the F3.

For the rest of the lineup, quickly, obviously there is some cannibalization between the rest of the lineup and the F3. But also we had too many ST non-current with quite heavy discount that have somewhat mixed a bit picture. Then we have a strategy going to Club next week meeting the dealers where we have a clear strategy of where we will be. We have a strategy to clean out the pipeline and make sure that we give a chance to the F3 and the RT to continue to grow.

Okay. Great. What's your outlook on the snowmobile market? What are some of the challenges? And I see that you're pretty well-positioned with inventories going forward.

In North America we have order on hand. We are in the full production deliveries, and Q3, Q4 will be on snowmobile. Then we have order on hand. Typically we're finishing delivery at the end of November before the snow really hits.

In Scandinavia we have mostly, in Scandinavia and Europe, our order on hand and this is well aligned. And we have order on hand also from Russia. Obviously Russia is a bit difficult right now. Q3 and Q4 are big quarters for Russia delivery. We have reduced our expectation. That is the risk that we have at the end of the year, is Russia will take all the orders or there will be some reduction. But beyond Russia we are comfortable with the rest.

Okay. Thank you very much.

Martin Landry, GMP Securities.

You just touched a little bit about the Maverick change in pricing strategy. I believe historically your products have been positioned as premium products. And I'm wondering, now, it looks like your Maverick Turbo is going to be priced in the opening price point. Is this a change in pricing strategy for you? Can you elaborate a little bit on that?

No. It's no change. Last year we came out with the first turbo in the industry. And we came out with the price premium product. To be honest, it retailed quite well. But when we started to survey dealers, some dealers and customers said there is a need for a base model with a big engine.

Then basically what we've done, we readjusted our lineup where we're offering a base model with the big engine. And we believe this will have some traction with consumer in model year 2016. We had the same strategy in other product lines. If you take watercraft, you have the top-of-the-line with the 260 horsepower watercraft, but we're also offering the 260 in lower-price category, less feature product.

Overall, it's not a change in our strategy. We like to be premium. We like to push technology and charge for it. But there was a clear need for a base turbo.

Okay. That's helpful. And touching again on the US industry, you're saying that it's healthy right now but it's also very, very aggressive. Wouldn't that be a behavior that we would see when times are tough? What's driving this increased competitiveness in the industry? Is it driven by inventory levels? And to that end, do you have a picture on industry-wide inventory levels in the US?

Maybe I'll take that one, Martin. One of the key drivers is the Side-by-Side is a growing industry, and I think the players want to capture market share and be an important player in that segment. That's why we're seeing more and more OEMs coming with new products and innovative products in order to capture that growing industry.

ATV has been declining for several years. It's more flattish this year. But all companies like to see growth and the Side-by-Side is showing that promise, and that's why a lot of OEMs are targeting SSV.

So, are we starting to see a buildup of SSV inventory at retail for all the OEMs?

We don't have visibility on what the OEMs' inventory is but we're managing our inventory prudently, as we've always done. And I think subsequent to the recession all OEMs have started that trend, as well. So, it's not a question of building inventory; it's a question of having more products that are being offered to the consumer.

Okay. And just, lastly, in terms of snowmobiles, I think your overall dealer inventory in North America is up 23%. And it looks like a good part of that comes from snowmobiles. And I think that's for replenishment at dealers because we've had a good couple of years. Where are you at in terms of your snowmobile inventory at dealers versus historical levels of three, four, five years ago?

Maybe I'll give you bit of color on where we stand today and how much of snowmobile is carrying that 23%. Out of the 23% growth, 12% comes from snowmobile. And you could split it 6% was from the opening inventory that we have and 6% coming from earlier shipments.

So, when I look at Q2 versus historical years -- and last year was an anomaly because we finished with very low inventory -- we're at standard levels. The critical point for snowmobile is when you come at January 31 where you want your inventory to be at the lowest level. But now we have the orders from dealers. We're shipping the units as planned. And retail is far from being started. It's going to be starting in October more. So, no issue there. And in terms of comparability we are comparable to prior years.

Okay. That's helpful. Thank you.

Steve Arthur, RBC Capital Markets.

I just want to follow-up on the sales programs and incentives for the Spyders and Side-by-Sides. You talked about the money being saved in Q2 probably being deployed in the second half. Can you give us any sense of magnitude of that shift either in terms of dollars or gross margin impact we might expect?

As you saw and we highlighted in the bridge sales program, with an impact of CAD10 million positive this quarter. So, I would expect that this money will be reinvested in H2, Steve. So, when I look out in terms of margin impact, sales program impact in terms of margin is about 120 basis points favorable this quarter. We can see that rolling out, not necessarily all in Q3 but maybe parsed out in Q3 and Q4.

Okay. That makes sense. And potentially related, just on inventory levels, Spark was higher at the end of July, which is very understandable given you couldn't really buy one this time last year. Are you comfortable with that Spark inventory level at this stage? We've seen some cash incentives out there on the Spark recently. Or will that be a higher program expense of the second half, as well?

If you look at, in North America we are a bit higher than what we would like, I mean higher than last year, obviously. That's why we have a small incentive on the Spark inventory, but very comfortable. And we had a pretty good month of August with the warm weather in North America retail. At international the inventory are very clean worldwide.

And it's customary to have at the end of a season sales programs, what we refer to as now non-current sales programs on all PWC. And I think we're offering a CAD200 discount on Spark. Very minimal.

So, it's really just the maturity of the Spark program. It was brand-new last year, sold out, now it's becoming a bit more --.

Yes, that's fair.

And the intention would still be to increase production again next year on Spark?

The demand was good this year in the US and we're going to Club in a few weeks and we'll see how the dealers. But the optimism is there. So, based on the Club results we'll be adjusting our production schedules accordingly.

Okay. Thanks very much. That's all for now.

Robin Farley, UBS Securities.

On the slides, the commentary about off-road refers to the season that looks like it ended June. So, I wonder if you could comment a little bit specifically on July and August retail. Was there further deceleration? It looked like the three months ended June was a little bit further deceleration. So, I wonder if you could comment on that for July and August for both ATV and Side-by-Side.

I would say in US no big change in the last two months versus the rest of the quarter. But in Canada obviously we saw some slowdown, particularly in the west of Canada. And in our case, we have quite high market share in Canada then obviously it's a tougher situation than maybe for the OEM. That being said, we still continue to gain market share in the ATV business. Very happy about that in both countries. And the Side-by-Side, we believe, with the model year 2016 realignment we're well-positioned for next season.

And the comments about no big change in the last few months, was that for both ATV and Side-by-Side?

In US, yes.

Great. And then similarly for motorcycle and the motorcycle industry overall, your sales, it sounded like in the comments on the slides about the industry, it sounded like it was actually pretty steady, pretty similar to the trends in the prior quarter. Has that also continued since July and August? Just thinking about whether in motorcycles the market is helping or hurting for the last two months.

No change. I will say the trend have been quite steady all season. Again, the entry-level motorcycle price point below 15 is growing the industry. The high end is slow down. But I would say it's the same trend since the beginning of the year.

Okay, great. And then, lastly, the comments about dealer inventory, you gave a breakdown of what part of that was driven by snow. Can you give a little bit more color to on ORV inventory at the dealers in terms of what percent increases from new products that you want more on the floor versus may be a same model increase year over year, what kind of a percent increase that is?

Yes. If I break down the seasonal, of the 23% increase seasonal is about 18%. Then I'd look at the Outlander L inventory being up, that's new models, and that probably accounts for about 2% to 3%, Robin. So, the remaining would be an increase of similar models inventory. So, we're looking probably at a range of, let's say, 2% to 3% similar model increase. Now, don't forget we've expanded our dealer network, as well, in the last few years in the US and Canada, and that carried some of the increase, as well.

So of the 2% to 3% increase in similar models, even some of that is actually just additional distribution points, right?

Yes. Some of it is additional distribution. And as I said in my remarks, we do have a bit more inventory of Side-by-Side given the softer retail in Q2 than what we were planning, and a bit more inventory of Spyder, as well, which we will be working on adjusting in the next few quarters.

Okay. And then just to clarify, did you say that seasonal inventory was up 18% or were you actually referring to year round?

No, seasonal. When I look at the overall 23% increase, 18% of that is seasonal products. So, snowmobile up 12%, and PWC, because of Spark, up another 5%, 6%.

Okay. Great. Thank you very much work

Cameron Doerksen, NBF.

I just wanted to ask a question on the marketing expense. It sounds like you're going to have a pretty broad new product launch next week. I'm wondering if you can describe what that implies for marketing expenses as we look to the back half of this year, maybe into early FY17.

Yes. When you look at our guidance number and then if you run the math as to what it means in terms of second half of the year, you'll see overall revenues being applied for the second half being zero to 7% growth. And when you look at each product category, year-round products will be growing quite significantly and some of that is going to be skewed more towards Q4. Seasonal expected to be down again based on just the implied numbers here as we brought some of the snowmobile shipments into Q2. And propulsion systems impact, the growth will be coming evenly in the two quarters.

In terms of expenses, as you've highlighted, there's a lot of expected product launches that are happening. And we've transferred some of the operating expenses from the first half of the year into the second half of the year. And we'll be seeing a bit more marketing expenses in Q3 in terms of year-over-year increase versus Q4, so Q3 will be having more of that than Q4.

Okay. And maybe just second question on market dynamics. You've talked about Canada being pretty weak, especially driven by Western Canada. But can you maybe talk about what the rest of Canada looks like if we exclude West, which we would expect it to be soft. And also what countries in Western Europe are particularly strong right now?

I would say that if you take the west of Canada is down, I would say, double digit, 20%, 25%. The rest of Canada is flattish. There is some months that flattish that would be the best way to say it.

In Western Europe, Scandinavia were down and I think Scandinavia economy is quite close to Russia, was down at the beginning of the year but we had a pretty good summer there for all product lines. And all the other countries -- France, UK, Germany, Benelux, Italy -- all those countries that you would believe could be affected by the Greece crisis are doing quite well in this year. To be on honest, better than what we had planned and a very happy about this part of the world.

Okay. That's it for me. Thanks very much.

Benoit Poirier, Desjardins Capital Markets.

Just to come back on the Side-by-Side, the SSV, I was wondering if you could provide more color about the implication of lower pricing. We just know that Polaris came in with -- took the lead with the Turbo and now you've lowered your pricing. So, I was just wondering if we should imply that it will be tough to respond to Polaris in the short term. And what is currently the main driver? Is it more a race to HP or is it more a pricing response that will drive the market going forward in the sport category?

First, in any sport category, Benoit, snowmobile, watercraft, performance is the name of the game. And we're used to that. That's what we like to fight to. We believe in the sport category, in the high-end sport category, performance is important but also pricing is important.

We came out last year with the X-DS Turbo at CAD22,999. And the dealer told us that there was a need for a base turbo and we introduced the base turbo. This year our offering is 131, as power.

Polaris came with the 144. Their pricing was higher than ours. And in terms of performance, obviously they have more horsepower but they are more weight than us. And if you look at the power to weight ratio, we're very similar. And even if you go on YouTube, you will find some video on YouTube comparing the two models and it's head to head. And it will be an interesting season coming in and we'll see how it goes. But I believe with the Maverick Turbo two position price point we're very well-positioned for the model year 2016.

That is very good color, Jose. And just if we look at the Spyder, the F3 is performing in line with expectations. But if you look at the traditional Spyder, I was just wondering if it's really related to difficulty with the ST or the RT. I'm wondering if there's some RT customers that are awaiting a bagger F3 so this is why the RT sales could be impacted.

Yes. Don't forget, Benoit, that we introduced the RT with the bigger engine last year. Not model year 2015 but 2014. This created definitely a lot of trade in for the new engine with the RT. Definitely we saw some customers coming in the store and when they see an ST 2014 with a non-current discount, they're struggling between this model with a discount versus an F3 or another new model.

At international we started the year quite clean and we had the good momentum overall with all the business. We believe that in North America the inventory that we had from model year 2014, particularly our S and ST, created some turbulence into the retail. Then we have a plan to correct the situation. We'll tell you more when you come at Club with the dealer in a week from now. But we have a plan to address the situation for model year 2016.

Okay. And just for the F3 it seems that it attracts a younger crowd which are more sensitive in terms of pricing, and even the younger guys are more attracted by two wheel. So, could you come in with a lower price point eventually on the F3, develop either a new product or bring a lower price point, or either support a sense that a two-wheeler might be something interesting for you going forward?

Obviously, Benoit, I won't comment on future product. I cannot comment on future product. On the other hand, if there is one thing that we've learned in North America, despite the incredible media coverage we had on the F3, the awareness is still half of what you have on the rest of the other Spyder. And what's happening for half of the people who know about Spyder, for them a Spyder is an RS, ST and an RT, not the F3. And we'll need to continue next year to build the awareness on the F3. And we believe it will be definitely part of our go-to-market plan for next year.

Okay. Perfect. And just for Russia, is the guidance still unchanged with respect to a 50% decline in revenues versus FY14?

Yes, it's still in line but, again, Russia, if there's one area which we are monitoring very closely, is the overall situation in Russia. The ruble has lost value in the last month or so. And so there's still a lot of unit deliveries to be done from now to the end of the year. The forecast is still in a decline of 50% over FY14 but it's one which we are tracking very closely.

Okay. And what were you assuming in terms of effects between the ruble and the euro, Sebastien?

Before the crisis the ruble was many, many years at RUB40, RUB45 per euro. If you remember, last year in December it peaked to RUB90-something per euro for a few weeks. We were happy because in April, May it did go down to about RUB55 which we saw some traction there. And now it's back to RUB75. And a lot of volatility in the currency between the ruble and the euro. That's why we have some uncertainty on snowmobile delivery there. But right now we're following the plan.

Okay. And last question just with respect to Western Canada, did I hear right that you say that it was down 20%, 22% as opposed to flattish for the rest of Canada?

Yes, about that.

Okay. And what is your percentage of revenues in Canada that comes from the West?

We don't give that type of disclosure, Benoit. But, again, the West is a material market for us on the snowmobile side. And on the ATV side we have good market shares in those regions. So, it's not a market that should be neglected.

Maybe I could add, Benoit, to give you more color. On the snowmobile side, because obviously all situations started about a year ago. And on the snowmobile side our orders from dealers on the West were significantly lower versus the year before. Then the snowmobile volume is factored in right now.

Okay. Perfect. Thank you very much for the time.

Mark Petrie, CIBC.

You guys covered an awful lot of my questions and a lot of detail. But I did just want to follow up, broadly speaking, on the PWC business and the Sand. I know when you launched the Spark your plan was to increase the penetration of PAC for that product. And historically PWC, I think, has not been particularly strong in PAC. But I just wanted to ask, how has that progressed? And how have your gross margins on PWC as a product performed over the last year or two relative to your expectations?

On the PAC side we got good traction. There's a lot of accessories that were offered with the Spark, the convenience package, the step ladder. And the take rates on those were very good and, so, we're extremely happy.

For sure when you look at the overall margin of a Spark compared to other traditional PWCs you're probably looking at, let's say, a 7 point difference in margin. When you have important volume with the Spark, that brings down the overall margin of PWC. But in terms of overall benefit to the bottom line it is positive. And when we look at the overall impact it has on the industry, on the dealer engagement, now PWC is much more top of mind, not only in North America but in dealers in Asia and in Scandinavia. It's a plus for us and therefore it's a recipe to continue on other product lines if we can do it. So, overall it's a big positive.

Okay. Thank you very much.

Gerrick Johnson, BMO.

Just to follow up and continue on the Spark discussion, obviously it's done very well here and done what you thought it would do in terms of re-sparking the industry. But can you comment on how it's been doing relative to your plan in the emerging markets? I know it's going to be something that would be attractive to those markets.

That's correct. We said in the press release we said world-wide it has an impact of 25%. I would say North America it's slightly higher. In my script I said 30%. In some countries, like Australia and New Zealand, where there is a lot of riding offshore, the Spark is a bit lower than in some other country. But overall, like Sebastien just mentioned a few minutes ago, all the dealers now have the watercraft in front of the store in the summer because there's a lot of activity in the watercraft market. Then we're happy with the overall situation and we believe there is still room to grow.

In emerging markets, is doing well. It's definitely a product that has good traction. But in Brazil it's maybe the reverse impact. Right now in Brazil, with the devaluation of the real, which was about 35% in the spring, we have increased, like all other OEM, our pricing by about 20%, 25% depending on the product line. And we see some slow down on the entry-level product but continued retail on the high-end because rich people can afford product despite the real devaluation.

Then I think my conclusion would be, in a normal economy, Spark has traction in emerging markets. When there is a situation like you see in Brazil, it's affecting the entry-level product faster than the high end.

Okay. Very interesting. Thank you for that. And then on propulsion I am assuming some of those gains are from Evinrude. Can you break out between re-power and package sales, was the growth in Evinrude mostly delivered to OEMs or is that re-power? How is that breaking out?

As you know, we've had a strategy to sign up new dealers and also sign up boat OEMs. With the G2 the strategy was also to target OEMs. So, most of the growth that we're seeing in outboard engine, Evinrude, comes from the package business.

Okay. Great. And just a couple more here. On snowmobile, why would dealers be asking for inventory earlier? And if you do ship earlier are you paying that floorplan financing for them in the interim?

What happened, Gerrick, we've been quite good in the last two to three seasons to sign our ratio of spring break units, snowmobiles that already the customer gave a deposit on it. Our ratio in the last two seasons have been extreme high. And the dealer have until the end of October to deliver the unit. Then last year we had dealers who had a few hundred units to deliver in a month and a half and it was a complaint for many dealers. Then that's those snowmobiles that we're trying to ship earlier. And that's what we've done in Q2. We shipped earlier to help the dealer not to have the bottleneck in the shop.

Okay. So we shouldn't anticipate that that would increase your cost in terms of helping these guys' floorplan.

No. Because the customer pay for it and typically we'll pick it up end of October, early November.

Okay, that makes sense. Okay, my last one here -- you explained that there are some unfavorable trends in rec-ute in the Side-by-Side business. Why do you think that is? What's exactly going on there in your mind in rec-ute?

I believe that the utility segment is getting more recreational. I think you see a lot of new products entering into the utility segment. And it's a bench sheet, obviously, but the product is more attractive, more appealing, better performance, and I think this has some impact.

Okay. That makes sense. Thank you.

Craig Kennison, Baird.

You've taken most of my questions, as well, but I wanted to follow-up on dealer inventory. You mentioned that inventory growth is partly due to the timing of shipments of seasonal product, as you covered with Garrett. But I'm wondering, as we get to year end, the end of the fiscal year, what should we expect in terms of a year-over-year increase in inventory? And then how much of that would be tied to an increase in the number of dealers?

What I can give you is I can give you color on, let's say, the next quarter. I'm expecting Q3 inventory to be up but not as high as we've seen in the previous two quarters of the year. And what will be driving that growth will also be on the seasonal products side. I'm not expecting the year-round product side to be a big driver of inventory growth.

Obviously at the end of January it's all dependent on the snowmobile season. We're all hoping for a very good snowfall and great retail on snowmobile. We will have more PWC because, again, we're finishing the season with more sparks on inventory, and so that is still going to be there at the end of January. But overall picture for January is going to be dependent on the snow season. So, it's tough to call today.

Thank you. And, lastly, just could you give us some color on the age of inventory or the level of non-current inventory?

Yes, it's something we do track on a monthly basis. And when I look at it today there is very little aged inventory. We're quite clean, in fact, in terms of inventory. We are a company that introduces a lot of new models on a yearly basis and we manage that pipeline very closely. So, in terms of above 18 months, it's below 5%.

Perfect. Thank you.

Tim Conder, Wells Fargo.

Thank you. Just a couple more color questions. You've given some commentary about Polaris. You've always cited Polaris as the competitor you watch the most. But your thoughts here with Honda and Yamaha, in particular, in the off-road segment, and in particular the side-by-sides with the YXZ just coming out. We're hearing some very good early things about that from at least the dealers. And then the line up that Honda has brought. If you had to rank those three competitors, who would you be most worried about and then least worried about, given the broader new product launches here this year?

Obviously, Tim, the OEM who has the biggest share is Polaris. This is definitely the one that can influence the most the industry up or down with their move. But lately I'm not surprised that the Japanese companies are coming back because if you look at the worldwide market, I think they're doing extremely well with the entry-levy motorcycle worldwide. And if you look at North America the side-by-side industry is still growing at a good pace. And it's somewhat normal that they coming in more aggressively.

Now, each OEM has his own DNA, I would say. Obviously Honda is a bit more utility side. That's their DNA. Yamaha has a broad range of product. And I think, at the end of the day, the big player is Polaris and we all try to catch up to them. And I believe we're well-positioned overall.

Okay. And then, gentlemen, as it relates to the outboards, Jose, I believe you mentioned that you're really pleased in the 200-plus horsepower part of the market. Can you talk about, is that concentrated more saltwater, coastal type of product? Is that where you're seeing the gains? Or is it freshwater? Is it balanced? Is it coming from the other main competitors out there -- Yamaha, Mercury, Honda, Suzuki? Any tilt one way or the other where you're seeing that share come from?

it's a bit early, Tim. We've been shipping G2 in big volume since December. We had a good first year. I will say right now we're gaining momentum everywhere in the world with the G2.

And what I'm very happy with is the fact that we've been able to sign something like 30 new OEMs. We're having new dealers coming in. And there is definitely -- the strategy was to create the pull from the consumer to embark more OEM and more dealers, and so far it's working. But it's just the beginning. We don't have the full delivery season yet. Then happy overall but I would say we're gaining overall right now.

Okay. And then lastly, gentlemen, I think there was a brief allusion earlier in the call, but El Nino, especially here in the US, a little bit of news coverage there and some comments there. But your thoughts of implications here. And, more importantly, your flexibility to respond to any potential disruptions in the market created by El Nino.

I've been with this business many, many years and we had a year like this year while they talk about El Nino and El Nina and the Farmer's Almanac. There is not much we can do. We took the order from the dealer late spring, we adjusted our production, and everything is running. And, as you know, the retail is very short in snowmobile. You're delivering the spring break model in October/November and the non-spring break in-season model will be November/December/January. Then there is not much we can do to adjust our production. Everything is rolling.

We've been in good year, bad year with snowmobiles. At the end of the day, wholesale will happen. If there would be a bad snow, we always face reality and we will help the dealer to try to clean out the pipeline. It will have an impact on next year for us, not on this year, because if the inventory is higher obviously the booking will be lower next year. But for the year everything is rolling. We would adjust with the program if we see that the snow is not there.

And that could potentially benefit some of your other products, correct? If you have a bad snow season it could be better for the off-road vehicles.

Yes.

And earlier spring, and better for year-round.

That's the beauty of multi-line products.

Okay. We'll see you, gentlemen, in a week here, then. Thank you.

Robin Farley, UBS.

Great. Thank you. Just thinking about your full-year revenue guidance unchanged, that up 5% to 9%, if we look at the US-Canadian exchange rate, it moved about 7% or 8% since you last reported and you last gave that guidance. Can you help us think about your expectations for shipments on a currency neutral basis? In other words, your as-reported revenues unchanged from 5% to 9%, but what's happening on a shipment basis? Currency neutral?

Sure, Robin. When you strip out the foreign exchange from the guidance, foreign exchange probably has a positive impact of about 6% in our guidance number. So, if you remove that foreign-exchange impact then you would have, on a constant dollar basis, year-over-year growth.

And are you saying that that 6%, referring specifically to just the change since you last gave guidance or do you mean --?

No. Year-over-year.

I'm just thinking about, is there a way to think about, is the change in guidance just since you last gave it in July?

No. We haven't changed guidance since we last gave it. But when we did give guidance initially in March, the US ended January trading quite high. In US-Canada we finished the year out almost at CAD1.30. So that was implied in our initial guidance. So, yes, the currency is strong now but it was strong, as well, at the beginning of the year. We tend to forget that but it's grown quite a bit in the year.

Okay. Think you.

Thank you. We have no further questions registered at this time. I would now like to turn the meeting over to Mr. Boisjoli.

Thank you, Maude. This concludes today's call. I want to thank all of you for your interest in BRP. And I also want to invite you to join us for our third-quarter earnings call that will be held on December 11. Thanks again, everyone, and have a good day.

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