BRP Inc (DOOO) 2016 Q4 法說會逐字稿

Hello, ladies and gentlemen. (spoken in French) Welcome to the BRP Inc.'s fourth-quarter and fiscal-year 2016 financial results conference call. (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 fourth-quarter and year-end results for fiscal 2016. 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 risk and uncertainty. I invite you to read BRP's MD&A for a listing of these. Also during the call, reference will be made to supporting slides, which you can find on our website at brp.com under the investor relation section.

So with that, I will turn the call over to Jose.

Thank you, Philippe. Good morning, everyone. Fiscal year 2016 have been a year marked by solid product introduction, flawless execution of our project, and gain across all our product lines. We faced a challenging environment, but this allow us to demonstrate the strength of our team, our product lines, our dealer network, our brands, our manufacturing strategy, and our global presence. And despite these challenges, we push -- we pursued the rigorous execution of our plan and I am proud to report that we have delivered the best financial result in BRP history.

Now let's start with an overview of our result for the year on slide 4. Revenues for the year increased by 9% to CAD3.8 billion. The increase was mainly driven by strong sales of year-round products, impact to the US. That benefited from favorable foreign exchange.

Our normalized EBITDA came in at the upper end of our guidance, up 9% to CAD460 million. And this resulted in a normalized earning per share of CAD1.71, a 4% increase over last year, or a 10% growth at the same income tax rate.

On the retail side, our full-year retail sales for seasonal and year-round products were up 2%. If we exclude snowmobile, which suffered from weak snow condition, our retail was up 5%. We had a good year in the US, with retail up high single digit as both the Sea-Doo lineup and the Can-Am Offlander family were a strong success in that market and in fact worldwide.

Sales in Western Europe, including Scandinavia, were very good and continued their sudden momentum. But it was more difficult in Canada, where our retail decreased by mid single digits, as the industry was impacted by a weak economy in Western Canada. Some international market, like Brazil and Russia, were also difficult. Considering the global economic situation and market dynamics, I am proud of our result for the year.

We have also made a progress in our journey to grow a GDP and lean enterprise. On the growth side, we demonstrated our commitment to accelerate Can-Am growth by entering the utilities side-by-side market with a Defender model and by committing to introduce a new side-by-side every six months for the next four years. We have also taken steps to build the Can-Am brands by sponsoring NASCAR races, and I am pleased with our progress in our dealer network expansion.

In terms of agility and lean enterprise, we have a new state-of-the-art facility in Juarez, and we have announced investment in Valcourt to improve our operation. We have also started to rollout new product designed to a modular approach and incorporated new technologies, improving our manufacturing agility. I am pleased with the progress we have made this year and we remain committed to grow our business.

Another key component to achieving our long-term objective is the optimization of our dealer network. With the Can-Am Defender model, we finished the year well ahead of our objective, by adding 105 new North American powersport dealers. And we now have improved our network coverage for side-by-side in Spyder by 28% since the launch of our program.

One of our priority in fiscal year 2017 is to make sure that all these new dealers are quickly operational and profitable. So for next year, we are targeting 45 to 55 new dealers, bringing us to slightly over 250 new dealers by the end of fiscal year 2017 and achieving our original objective of extending our North American network in the range of 200 to 300 more dealers.

Let's go into the quarterly product category review, starting with the year-round product on slide 8. Year-round revenue grew 16% to reach CAD483 million, driven by the introduction of the Can-Am Defender model, favorable currency impact, and general price increase.

Looking at the off-road retail sales, on the ATV side, the Can-Am Offlander L is continuing to perform well and is helping us to outpace the industry in North America, as our season-to-date retail is up mid single digit compared to an industry that is down low single digits. The Offlander L also had a very strong impact outside North America, driving retail growth in multiple regions around the globe.

Turning to the side-by-side business, the same trend as previous quarter continued, as the season-to-date industry retail is up mid single digit, while Can-Am retail is down mid single digits. The trends remain the same, with growth being driven by the utility segment.

Note that only a few Defender unit have been in retail at the end of January, as we continue filling the network for dealers as they each keep one unit for demo purpose and one for their showroom. We should have a better idea of the Defender retail performance in the next few months, but all signs are positive.

We also started shipping the Defender XT CAB late in January. This model come with factory-installed cabin and heater, which is an important benefit for the dealer as it reduced time spent on preparing the unit for the sales and ensuring factory-built quality.

Now looking at Spyder. Just a quarter into the season 2016, the motorcycle industry was down mid single digits, while Spyder was up mid single digits. But on a very low volume, as the car retail period as not yet started. Also, the Can-Am brand was visible during four NASCAR races and we are pleased with the exposure and with the number of lead we have generated so far.

Seasonal product highlights on slide 8. Seasonal product revenues declined 9%, resulting from earlier shipment of snowmobiles in the year and from highest sales program as we help our dealers with retail to compensate for the weak snow condition in North America and the difficult economy in Western Canada.

Our programs were quite successful. It impacted our profitability in the fourth quarter and it is impacting our first quarter in fiscal year 2017. But it will allow us to end the season with a reasonable network inventory position, which was the right thing to do for both our dealers and our business. The decrease was partially offset by a favorable mix of personal watercraft, with the introduction of the 300-horsepower engine, and by favorable foreign exchange rates.

Now looking at the North America snowmobile retail, as at the end of January, the industry was down high single digit for the season, with Western Canada being down about 25%. Ski-Doo gained market share, but retail was down mid single digits for the same period. These trends continued into February.

As I mentioned, our sales program were quite successful and they help us to gain back some of the retail we had lost at the beginning of the season. In Scandinavia, the industry is up mid single digit. With Ski-Doo and Lynx, our market share is flattish, as some of our competitors were very aggressive on discounting. Still, we remain the clear number one OEM in that market.

Now on the personal watercraft, North America is in its slow season and retail has been mostly flat. Looking at Australia, our biggest counterseason market, the new 300-horsepower engine has been driving a lot of interest and our retail is up midteens.

Two weeks ago, at our Club Ski-Doo 2017 in Dallas, we made a major statement in the snowmobile industry by introducing a new generation of the REV platform. It is the first time in almost 20 years that we've designed a new platform and a new engine at the same time to deliver an incredible consumer experience.

This new platform improved the riding experience by providing a forkless and precise handling with trailing power. Our engineer and designer did an incredible job with this sled. It was designed to follow our new modular retail approach to improve efficiency in our plan. It is offered on three product segments for season 2017 and it will be extended to other segment in coming years. It is well received by media, dealers, and consumers.

Overall, I am satisfied with our performance in the snowmobile business. Our team was proactive in putting a plan together to recover a difficult season. And with the new product introduction, we are well positioned for this coming year.

Now into propulsion system. Our fourth-quarter sales ended at CAD99 million, a 9% decline due primarily to lower volume and unfavorable product mix, as we were facing a tough comparable, given the fact that we had just started shipping the Evinrude E-TEC G2 outboard, and were filling the pipeline during last year fourth quarter.

Looking at retail seven months into the season, the outboard engine industry is up mid single digit, driven by new boat sales, while Evinrude retail was slightly down. Our underperformance is coming from our channel mix, which leans heavily on the repower business.

The E-TEC G2 engine is continuing to perform well and it has allow us to make growth progress -- good progress on the network development front in fiscal year 2016, as we added 16 new boat OEMs and 72 new dealers in North America. We also just announced an agreement with Telwater, the leading manufacturer of aluminum boat and trailer package in Australia, to make them our official distributor of Evinrude E-TEC outboard in the region. And we believe this agreement will give us more exposure and generate more potential for growth across the market.

Turning the slide 11 for parts, accessories, and clothing. Our PAC sales for the quarter increased by 12%, despite the decline in our slow related parts, as the lack of snowfall shortened the riding season. The growth was driven by the continued development of our side-by-side and Spyder business as well as several foreign exchange rate variation.

Our PAC business is also benefiting from the continued momentum we have in Western Europe and Asia Pacific. PAC has been a key contributor to our growth this year and we are making sure to continue our good performance with the introduction of our model-year 2017 snowmobile lineup, as we will be offering 90 new accessories to complement our new platform.

Sebastien will now walk you through the financial review for the quarter.

Thank you, Jose. Good morning, everyone. Let me start with a few highlights of the quarter.

Revenues were up 4% from the same period last year. The increase was firmly driven by higher sales of our year-round products and favorable foreign exchange rate variations, which were partly offset by lower wholesale of snowmobile as we delivered shipments earlier in the season compared to last year. And higher sales program costs, as we supported our snowmobile dealers, given the late snowfall and difficult economy in Western Canada.

Gross profit was CAD286 million, translating in a gross profit margin of 25.8%, a decline of 130 basis points from last year, primarily driven by higher sales programs for snowmobile and unfavorable foreign exchange rate variations. These were compensated in part by general increases in pricing.

The normalized EBITDA stood at CAD174 million, and normalized diluted earnings per share was CAD0.75. The quarter was also marked by a CAD45 million, net of tax, impairment charge related to our outboard engine business. The impairment was triggered by changes in the profitability profile of the business, mainly due to the strengthening of the US dollar, which impacted profitability of sales outside the US. For the full year, our results came in at the higher end of our guidance ranges, with both revenues and normalized EBITDA growing 9% and normalized diluted earnings per share ending at CAD1.71.

Moving to our revenues by product categories and geographies on slide 14, our product category mix for fiscal 2016 was similar to fiscal 2015, with 38% of our sales coming from year-round products, 36% from seasonal products, 10% from propulsion systems, and 16% from parts, accessories, and clothing.

From a regional perspective, the US drove most of the growth this year, with an 18% increase in revenue, primarily driven by favorable foreign exchange rates. Canada was down for the year, as sales of year-round products and snowmobiles were negatively impacted by the difficult economy in Western Canada and because of the weak snowfall.

For international, revenues were up 4%, despite the significant decline in sales to the Russian market and the unfavorable impact from foreign exchange rates. The growth primarily came from good momentum across our lineup in Scandinavia, Western Europe, and Asia Pacific.

Turning to the normalized and income bridge on slide 15. Our normalized net income stood at CAD201 million, up CAD5 million from fiscal 2015. Volume, mix, pricing, and sales program had a net positive impact of CAD45 million.

Production costs and operating expenses also benefited our normalized net income with a positive impact of CAD10 million. These two elements were partly offset by increased depreciation expense for CAD12 million, a negative impact from normalized tax expense and financing costs for CAD15 million, and unfavorable foreign exchange rate variations for CAD23 million.

Onto the balance sheet and cash flow update. We generated CAD150 million of free cash flow for the 12-month period. This was down CAD53 million from last year, mainly driven by a CAD39 million increase in capital expenditures primarily resulting from investments in the new ORV manufacturing facility in Juarez and by higher investments in working capital.

We also allocated CAD96 million to share buybacks, completing the repurchase of 3.7 million shares available under our NCIB. We therefore ended the year with CAD235 million of cash on the balance sheet. Our long-term debt stood at CAD1.1 billion, up from last year, driven by the strengthening of the US dollar.

Now slide 17 for a look at BRP's powersport dealer inventory for North America. We ended the year with network inventory up 7% from fiscal 2015. The main drivers of the growth were snowmobiles, as the retail at the end of January was lagging our plan; the Defender side-by-side, as we started initial shipments for dealer showrooms in December and January; and the increase in dealer count added over the last three years.

Overall, we are very comfortable with our dealer inventories. The increase in snowmobile is completely offset by a reduction in the rest of the lineup, and therefore, 7% of the growth comes mainly from our entry into new segments and growing our distribution network.

And finally, our guidance for fiscal 2017 on slide 18. For the year, we are expecting our total Company revenues to grow between 4% and 8%, including a 2% positive impact from currencies at current FX rates. Our product categories' revenue growth are expected to be up 6% to 10% for year-round products, flat to up 4% for seasonal products, up 5% to 10% for propulsion systems, and up 5% to 10% for PAC.

The main drivers behind the growth are the deliveries of our new products in all product categories, especially the Defender, the new Ski-Doo platform, the 300-horsepower models for PWC, and the E-TEC G2. Also contributing to the growth are the expansion of our dealer network for both powersport and outboard engines, our marketing efforts to increase the awareness of our brands and products, and continued product innovation driving market share gains. We do not assume any improvement in some of the difficult markets out there, notably Western Canada, Russia, and Latin America.

At current FX, we anticipate our gross margin to suffer a 50 basis point decline due to currency. Normalized EBITDA is expected to grow between 7% and 10%. Depreciation is forecasted at CAD150 million, resulting from the past few years' investments in product innovation and manufacturing strategy. This increase in depreciation expense represents a CAD0.15 EPS or a 9% headwind on our bottom-line growth.

We are planning for net financing costs to be around CAD60 million and an effective tax rate between 27% and 28%, which would bring our normalized net income growth to be flat to up 7% and resulting in a normalized earnings per share of CAD1.75 to CAD1.85.

Looking at the split of the normalized EBITDA between the first and second half of the year on slide 19. Again this year, we anticipate our normalized EBITDA to be mostly generated in the second half of the year. In fact, we anticipate our quarterly normalized EBITDA for Q1 and Q2 to be quite similar to what it was two years ago in fiscal 2015.

The main reasons for the significant decline in the first quarter are the increase in sales program costs, as we continued our support of snowmobile retail in February and March; overall higher level of R&D expenses for this year compared to last year; and planned increases in marketing expenses for the first quarter, especially in the US, which will also be negatively impacted by foreign exchange rates.

Q2 is once again expected to be our smallest quarter, especially given that we have received strong orders for the new Ski-Doo platform, which will only be produced later in the year and therefore reducing our snowmobile deliveries in the second quarter, but increasing it in the fourth quarter. Also, fiscal year 2017 will be a busy year with product announcements, and you will see a lot of these new products being delivered in the second half of the year.

And on that, I will turn the call back to Jose.

Thank you, Sebastian. I'm very proud of what our team has accomplished in 2015 with our solid product introduction, flawless execution of our projects, and gain across all our product line. I want to thank all of our employee around the world for their commitment and hard work.

Looking ahead to fiscal year 2017, we feel we are in a good position to face the uncertain economic environment. Some market are going well, notably Western Europe, Scandinavia, and Asia Pacific, but other continue to show sign of weakness, mostly Western Canada, Latin America, and Russia. And while the US is still a healthy market, it is very competitive.

However, we feel we have all the tool needed to succeed in fiscal year 2017, as we have a solid product portfolio, a strong dealer network, brand that are gaining momentum across the globe, a comprehensive global and manufacturing footprint that we are now in a position to leverage, and the most passionate and dedicated employee in the business. Moving into fiscal year 2017, we are aware of the challenges ahead, but confident in our ability to deal with them.

Thank you all. We will now take your questions.

(Operator Instructions) Benoit Poirier, Desjardins Capital.

Yes. Good morning, gentlemen. Just my first question: if I look at the dealer expansion, you did quite well this year, adding up 105 dealers. Much higher than expectation. So when I look at your comment for outboard engines, you were facing a tough compare because you were filling the pipeline last year.

I'm just wondering when I look at the inventory how much sales will be impacted by filling pipeline with the new dealers this year? I'm just wondering whether you will be facing a tough compare in about a year, given the dealer expansion that happens right now.

Good morning, Benoit. Listen, first, we probably signed -- we end up higher than what we were planning late in 2015 because of the popularity of the Defender. We probably signed 15 dealers in January that we had plan in February and March.

The dealer are excited with the Defender and they want to sign earlier to be able to benefit from the retail season in spring that is coming. And then that's why we reduced slightly our target for fiscal year 2017, but we are well above our original target that we set a few years ago.

Now, filling up those dealer will happen quite quickly for most of them, and we believe it will be part of our growth story in the year-round product for the year. That being said, you will understand that for competitive reasons, I cannot -- going in more detail than that at this time.

Okay, perfect. Thanks for the color. And just related to the charge of CAD70 million you took in the quarter for outboard engine, could you mention more color? It seems that it was related to lower financial performance. I'm just curious to get more color on the charge.

Good morning, Benoit. Obviously, OE is still a very good business for us. We are investing in this business, and the G2 is gaining in popularity. But a big part of our business is outside of the US. Almost 50% of our revenue comes outside of the US, and we have a cost base in US.

And with the important strengthening of the US dollar that we saw a detail in the fiscal year 2016, that impacts the profitability profile of the business from the revenues we generate outside the US. And therefore when we look at our plans and when we look at the industry trends and where the industry is growing where BRP is strong and we look at our cash flows, that resulted in a -- I will call it a regulatory impairment charge, a non-cash charge for the business.

But it doesn't mean that we don't have trust in the future of the business. The contrary: we are continuing to invest in new platforms and in the G2 technology.

Okay, perfect. And just in terms of FX, I understand this will impact your revenue guidance by almost 2% in fiscal 2017. Looking at fiscal 2016, had a CAD23 million negative impact on the bottom line. I'm just curious when I look at the net income in fiscal 2017, what would you expect in terms of FX contribution to the bottom line?

When I look at the FX profile, let's say if we take fiscal year 2016 in summary and [worldwide], the US rate improved year over year 16%. And then when you look at the CAD23 million unfavorable impact that we had on our profitability and you break it out, of that CAD23 million, CAD13 million comes from variations and the working capital items.

Therefore, revaluation of the balance sheet at the end of the period caused by pluses and minuses that the currency might have. And therefore if you have a flat currency year over year, that should not come back.

The other element is financing costs, which were impacted negatively by CAD6 million. And so when you net all of that out, you are left with about a CAD4 million to CAD5 million net income -- or EBITDA impact on operations. That's when the US rate increased by 16%.

Obviously, our forecast is not calling for US to increase that much. For current fiscal, we are looking at a rate of [135], so that's about a 3% increase year over year. And that's why we don't anticipate a significant impact from currency on the bottom line, Benoit.

Okay, so this is very good color. And just related to your 2017 snowmobile models, obviously new engine, new frame. I'm just curious with respect to pre-buyout activity, it seems that you received some positive comments from the dealer. I'm just curious if you are recording more sales for that platform as opposed to typical year for the current period of time.

Yes, like I said in my statement, Benoit, we recover a difficult snowmobile season first. We decided to be aggressive in promotion starting in January, which affected Q4 results and affecting February and March result.

But the benefit of that is that we will end the US -- in US, we are almost on target, and in Canada, slightly below target in term of retail because of Western Canada. If you look at all the province outside Western Canada, we are flattish. Then very happy with the way we recover a difficult snowmobile season and we are very close to what we had planned originally.

When we introduced the new platform, very well received by media and dealer, and some customer right now are trying it. And the order -- the mix that we had planned and the mix we will be producing will be a bit different. We'll have more of the new platform than what we had anticipated originally. But those will be produced until mid-December.

Typically, we end snowmobile early December, and this year we will have the snowmobile production until mid-December. Then happy about the way we recover. On the other hand, backend loaded. And the ratio of our new platform will be almost a third of the overall production. Then very happy overall.

Okay. Good color. Okay, thanks, I will pass the line.

(Operator Instructions) Robin Farley, UBS Securities.

I wanted to get a little bit of color on maybe the segments within the side-by-side business. I wonder if you could talk a little bit about what you are seeing in sport versus utility growth. And if we should think about your new product intros every six months also being additional in the utility segment and/or any color you can give on growth outside of the oil regions.

Good morning, Robin. First, the trend didn't change much in the side-by-side business. The growth came a lot from the utility segment. And that's why when you look at our overall performance versus the overall industry, because we don't have yet much sales in the utility segment, that's why we are behind the industry.

Then on the sport and the rec-u Commander and Maverick category, basically we are following the industry roughly. And the Defender, we started deliveries in January on plan. And right now, the dealer are keeping one unit for demo, one for showroom because the marketing campaign will start -- it started mid-March.

Then so far, we didn't lose momentum with the Commander and Maverick; it's just because we are not there yet in the side-by-side segment -- in the utility segment, sorry. But we believe that we are well positioned with the Defender. The pipeline now is almost filled up, and with the marketing campaign, we feel comfortable going forward. We will have more color for you on the Defender popularity to our retail when we have our call in June.

Then that's in a nutshell the way I see things in the side-by-side business. The market has slowed down, but it's still growing at the lower pace.

And my follow-up was going to ask about the Defender since the end of January, just since -- in the second half of March here. Just any color from -- I realize it's probably only been a month or so of retail, but just any initial thoughts on Defender at retail since the quarter ended?

Too early to see, Robin, plus we are right now in low activity into the side-by-side business. We are somewhat between the snowmobile season and the winter and the spring. It's a low activity month and we don't have much color at this point. Don't forget we don't have industry data. We have it only on quarterly basis.

I know. But just literally even sort of not relative to the industry, but just how you felt.

Like I said, too early to say at this point.

Okay. Great, thank you very much.

Jamie Katz, Morningstar.

Thanks for taking my questions. I'm curious to hear where you guys think you're able to take the best price increases. I think the commentary indicated that it was in the ATV segment. And in light of the current environment and the discounting that's going on, is it passing through in mostly new models or has there been some other ability to raise prices within the segment?

First, year-over-year price increase, we are just pricing in the range of 1% year over year. That's the average that we had between product line. Right now, we are following that ratio in the US, compensating for inflation. The -- outside US right now, price are going up right now because some of our competitor who are US-based are increasing pricing, and we try to follow the opportunity.

We increased price in Canada probably 1% to 2% higher than average because of what's going on between the US and Canadian dollar. But you cannot go too fast not to make your product that you ship obsolete then. And don't forget, the US country is always the reference for pricing. Then we believe that we will have some -- if the US stay at the strong level, we will have some opportunity to increase in time pricing, but you need to go at the lower pace.

Okay. And then as a follow-on, in looking at the guidance that you have for the year ahead, it would imply that some -- maybe it would be sort of difficult to capture any gross margin gains. And so despite having some price increases, I think there might be some FX headwinds or maybe stabilization versus -- the US dollar versus the Canadian dollar this year. Are there any other puts and takes we should be thinking about in that gross margin line over the next year? Thank you.

When you look at the pluses and minuses, the FX is going to be a headwind. We believe it's going to be about 50 basis points. We think -- we believe gross margins, despite putting in a bit more sales programs again this year, is probably going to be in impact that's for Q1 about 160 basis points. We believe gross margins will be flat fiscal year 2017 versus fiscal year 2016.

Positives that we have on the gross margins are full production in Mexico this year for personal watercrafts. We had discussed about a CAD20 million to CAD25 million cost-saving from the transfer of PWC to Mexico. That's being -- that's happening and that's there.

However, we are opening a new plant in Mexico. We are in a ramp-up phase this year, so we will not be fully absorbing all the costs there. Therefore, that's going to be a headwind for the margin.

So if I were to summarize it, let's say a headwind on FX, neutral on overhead absorption coming from PWC offset by the new plant, and you will have some production cost savings, which would offset the gross -- the FX headwind to give you flat margins.

Thank you.

Tim Conder, Wells Fargo Securities.

I guess the first question would relate to Evinrude. Thank you for the color so far there. But a competitor recently showed a chart where obviously the two-stroke market is shrinking, continues to shrink. And then you've got two major competitors out there in the outboard market, and then the underlying industry growth.

So I guess with that all being said -- and the industry growth being driven by the US. But with that all being said, how do you see the performance of Evinrude and then specifically in the two-stroke market going forward unfolding?

Yes. First, good morning, Tim. We have about 10% market share in the outboard business worldwide. And our mix -- because of the bankruptcy that had been at OMC in 2001, our mix is about 75% [AV] power, putting a new engine on an existing boat in 25% OEM.

Now, we had difficulty before to sign OEM and we were stuck with that mix, and that's why our sales have been flattish for the last few years. The beauty of the G2 -- the G2 is a two-stroke engine, which performing better than the four-stroke engine. And we are able since the introduction of G2 to sign 30 new boatbuilder and about 150 dealers.

Then we believe that the strategy will pay off whereby signing new OEM, we will shift our mix more OEM and less repower, and we believe this will help the Evinrude brand.

Now the G2 again, very good performance in term of emissions, in term of noise, oil consumption versus four-stroke. We just believe we need a bit more time to have more G2 out there. Plus, don't forget: the G2 to date is 200 horsepower and up. We will continue to expand the technology lower into the HP range. Then we are happy with our progress since the introduction of the G2 and you can see it accelerate in time.

And Tim, maybe if I could add additional color from Jose. Yes, the overall market of two-stroke has reduced, and that comes from what we called the dirty two-strokes, which are now more limited in being able to sell because of EPA regulation.

The advantage with the G2 and the E-TEC technology is that we have a direct injection combustion engine two-stroke and therefore we have no constraints in meeting environmental regulations. We have a lot of OEMs who have exited the two-stroke market because of those requirements.

There are still huge advantages with the two strokes in terms of weight and torque, and that product has its place in the market. But the decline in the market comes from a lot of players exiting what we call a carbureted or dirty two-stroke engines.

So basically we should start to see here on a go-forward basis the dealer expansion strategy? And then again, you're meeting all the admissions and everything, but that should start to be manifested in Evinrude specifically?

Yes.

Yes. And as we always said, the marine industry is a different industry than the powersport industry. We understand that the competitive environment is different and that the path towards growth is going to be longer for Evinrude then, let's say, entering the Defender in the side-by-side market.

Okay. And then a -- more of a housekeeping item and then I have my follow-up. Considerations of a US listing to help liquidity -- I guess that's the housekeeping item. My follow-up is not to stay negative, given you guys are doing pretty well on the ORV side, but the other negative, I guess, that's stood out is just the struggle with Spyder and against admittedly a competitive US overall motorcycle market in the on-road category.

Anything different -- the F3 has been out there and so forth, but anything different or maybe thoughts in shifting tact there in any way that you are considering in addition to just the dealer growth that you are continuing to register?

But first -- the Spyder -- the F3 was introduced last year. Then we are right now in our second year. The disappointment I had after the first season was the awareness of the Spyder. Spyder is quite known, but the F3 was almost barely known.

And right now -- and that's one of the reason why with NASCAR, we are quite happy of our association with the NASCAR. I just gave you -- then we believe that if Spyder is more known, if the F3 is more known, we should see the lift that we had anticipated the first year.

Just to give you a sense, we have done four NASCAR race so far into the season. We have one additional race this weekend, but we generated about 10,000 lead for Can-Am, ATV side-by-side, and Spyder per race since the beginning of the racing season.

Then again, my disappointment with F3 was the awareness the first year. We are putting heavyweight marketing campaign and the association with NASCAR to change that. And I think the jury is still out.

Thank you.

Anthony Zicha, Scotiabank.

Jose, how much of your guidance is dependent on the successful introduction of new products outside of the Can-Am Defender?

Good morning, Anthony. Let's start with snowmobile. We came out of the Club in Dallas with a preliminary order from dealers that is 90% accurate. Then the dealer could adjust slightly their order, depending of the spring sales -- the presales to the customer at the end of April.

But our snowmobile order is almost slack. And that's why we are comfortable with our guidance because this is an important business for us and it's almost firm from the dealers. After that is the execution for the shipment.

Then you have the Defender was coming. The snowmobile is done, and we will continue to come out with new product in all the product line during the year. But for us, the fact that Defender is tracking well, the fact that the snowmobile season is -- the snowmobile volume for fiscal 2017 is almost slack, we are quite confident with overall guidance.

Okay, excellent. Well, thank you very much.

Martin Landry, GMP Securities.

First question is on your guidance for year-round revenues. You are calling for revenues to be up 6% to 10%. Just wondering what is the outlook for your side-by-side in that guidance -- maybe some more color on that.

Well, the -- obviously with the announcement that we made last fall that we've been introducing a side-by-side product every six months, and our recent launch of the Defender, which is just hitting the market and the expansion of the dealer network, side-by-side is carrying a lot of that growth. Roadster is going to be a -- and Spyder is going to be a good business, but we are expecting some growth, but not as significant as side-by-side.

And the other element of growth is the ATV. We've had good success this year with the ATV gaining market share, even increasing retail in a declining industry. The Outlander L is extremely well received and it's making good headways in all markets and we believe that is going to be an important driver of growth as well for the upcoming year. So in summary, I would rank them number one SSV; number two, ATV; and the number three, Spyder.

Maybe to add something, Martin, to Sebastien's comments, I think the difficulty on side-by-side -- we have no doubt that the Defender will be successful. I think right now, the question is the cannibalization with the Commander.

There will be some cannibalization and typically takes about 12 months to 18 months to understand what will be the run rate cannibalization. And that's what is a bit difficult to read right now is how much the Defender will affect the Commander.

Okay, that's helpful. And just a follow-up on your CapEx guidance of CAD190 million to CAD205 million, it looks a little high versus historical levels. And given that your Juarez plant is complete now, just wondering what is driving that high-level CapEx?

Well, the -- in terms of operating excellence and lean agility, we are improving other facilities. We've made an announcement of an important investment in Valcourt. That's going to be starting in fiscal year 2017. And also let's not forget: we are entering into more product lines, more segments, and we are fueling growth with a lot of product introductions.

And so tooling for new products is also going to be a good consumer of CapEx. And in this technology age, we are investing as well on the IT side to continue driving good consumer service and driving operational excellence in the business. So that would be the three main areas.

Okay, that's helpful. Thank you.

Gerrick Johnson, BMO Capital Markets.

So your dealer inventory growth of 7% -- okay, especially when you look at the breakdown. But I was wondering how bad everyone else is. Most of your US dealers are multi-brand, so a buildup of, say, Polaris or Arctic Cat could have an impact on you. So what are you seeing there with your competitors?

Good morning, Gerrick. Obviously, we don't have a lot of visibility on this. The only comments I would say is we are monitoring on the -- on every month the financial health and the credit line and the dealer that are in difficulty on their credit line. And we didn't see any bad sign in the last few months. We don't have much visibility on our competitor inventory, but for a multi-line dealer, we don't see more dealer than typical struggling with their credit line.

Okay, great. Thanks. And I was hoping maybe you could discuss warranty expense. You guys offer some amazing warranties, like I could get a seven-year Evinrude warranty at the New York Boat Show. So just wondering what your warranty expenses are looking like and any more commentary on that would be helpful. Thank you.

We've been pretty good in the last few years to introduce product with very high quality. And for -- our warranty costs have declined over the last few years. And for us, this is the type of promotion that has a lot of value for the consumer. And discussing a reasonable cost for us, then this is why we are using a lot extended warranty for Can-Am product or snowmobile even -- all the product lines, in fact.

Okay, thank you.

Mark Petrie, CIBC.

Just a couple follow-ups. On the guidance for year-round and specifically the side-by-sides, just digging into that, is it -- are you expecting growth in the non-Defender side-by-side category in your guidance?

Right now, there is -- if you look at the industry, the industry is growing at a low pace for us. Because of the cannibalization aspect on the Commander, we are planning some decline in the Commander sales, compensated by the Defender. And that's -- we are very comfortable with the Defender popularity.

The difficulty the first year when you introduce a new product like this is cannibalization. Then basically, Defender will cannibalize Commander. Then a decline in Commander sales, and an increase on Defender, but overall positive.

And what about Maverick?

The Maverick -- happy so far. We are about stable. We are following the industry into the Maverick category.

Okay, thanks. And then just one on -- your EPS guidance I think it implies basically flat share count. How should we think about your plans for the NCIB and generally your allocation in terms of free cash flow?

Yes, if I look at the allocation of free cash flow next year, and if we try to do the math, we gave you pretty much all the numbers to come up with EBITDA, CapEx. We are probably going to be investing in working cap as well and with the interest expense, so you're probably looking at free cash flow, let's say, of north of CAD200 million to CAD250 million. CapEx, as I mentioned in the guidance, CAD190 million to CAD205 million.

For the NCIB this year, we repurchased 3.7 million shares for about CAD96 million. Obviously where the share price is trading today, it is an attractive return of value to shareholders to put the NCIB into play. We could buy back this year about 3.4 million shares under the rules of the NCIB, which is 10% of the float.

Okay, so you have good flexibility there. How do you think about a dividend?

It's a -- we have recurring to OpEx on capital allocation with the Board. Obviously, the priority is growing the business. We have investments organically to drive growth. We are putting some money to work likely on the NCIB.

So in the short to midterm, we want to keep optionality to capture any opportunities on the growth side. Obviously, the debt is maturing as well in three years, so the overall leverage profile is a recurring discussion that we have as well with the Board. So today, we are not at a point where we would go ahead with a dividend announcement.

Okay, thanks very much.

Cameron Doerksen, National Bank Financial.

Just really one question on the guidance. In your slide deck, you talk about in the back half of the year a richer product mix. I'm assuming that some of that is probably Sea-Doo and maybe some snowmobile as well. Is there anything else in there that would cause a richer product mix? Maybe you could just describe what your expectations are there?

Yes, there is a few things. First, we -- as you know, we committed to new side-by-side every six months for the next four years. Then you can expect more side-by-side product coming in. Also, don't forget that all those dealer that we have add up during the year -- fiscal year 2016. Before they get started, it takes always -- it could take six months to 12 months for a dealer to gear up.

Then this will have a bigger impact in the second half of the year. Then we've talked about snowmobile, side-by-side models, dealer impact, and the snowmobile that is loaded on second half.

So when you talk about richer product mix, you're talking about higher-value product. So is that mainly side-by-side that you see having a higher revenue per unit?

But we had a lot of -- like the watercraft right now is rich on the mix because of the 300. The snowmobile, like I said, about a third of our production will be our new snowmobile and it's all high end with the 850 engine. Then the mix is quite rich on watercraft, on snowmobile, and also on side-by-side.

Okay, very good. And just a question on the dealer network, you had very good additions in 2016. Where are you still underrepresented, I guess, geographically?

Just to give you some colors, we are happy because if you take out the dealers that we have had up so far, about 40% come from the south-southwest and 95% of the new dealer that we've signed had Can-Am are for ATV and side-by-side. And happy with our progression.

I will say right now with the -- the remaining 35% to 45% for this year is spread over North America -- spread mainly over United States, Canada. We are almost 100% covered. It's spread over all United States.

Okay. Very good, thanks very much.

Derek Dley, Canaccord Genuity.

I just wanted to clear couple of things up here. So you guys' earnings guidance for 2017 does not include the NCIB, correct?

That's correct.

Okay, great. And I think you just may have said 35 to 40 new dealers next year, but I thought, Sebastian, you said it was 45 to 50 is the target.

No, what we discussed this morning in terms of target was 45 to 55 -- the target for this year.

Okay, 45 to 55.

I make a mistake, Derek.

Sorry, sorry. Okay, I just wanted to clear that up. And in terms of your gross margin during the quarter Q4, of the 130 basis point decline, how much of that was attributable to FX?

FX was 120 basis points of a headwind. If I give you, let's say, a little quick bridge: discounts, 160 basis points negative; FX, 120 basis points; volume mix and pricing was positive by 220 basis points; and then we have other negative elements, such as depreciation and other for about 60 basis points.

Okay, great. That's very helpful, thank you.

Craig Kennison, Baird.

Thanks for taking my questions. You had mentioned credit availability at the wholesale level among your dealers. How would you characterize credit availability at the consumer level? And are you seeing any regional differences in markets perhaps affected by energy?

We work very closely. We have several partners; one of the big partners in the US is Sheffield. We track acceptance rates and penetration rates, and we haven't seen any important changes in the last, let's say, 12 to 18 months. And we are impacted somewhat by -- we will call it oil and ag, but because we -- and the markets which are very strong are markets which are very utility-focused on the side-by-side area.

And I can't say we've seen a big impact on our numbers. Obviously, Western Canada was big for snowmobile for us, but if I look on the US side, we haven't seen an important negative trend for BRP with the spectrum of products that we are selling. Obviously, one market which was hit harder was the utility side-by-side market in these states.

Thanks. And as a follow-up on the credit question, who -- what would your availability be -- I'm sorry, what was your availability last year? And did it expand last year and would you expect it to be flat this year? In other words, was credit availability or credit expansion a tailwind last year contributing to growth?

So I can't say it's been -- it hasn't been a tailwind confined to growth. It hasn't been a headwind. It's been -- even on snowmobile, it's probably even been a tailwind. We've actually worked with our partners to offer great financing support for snowmobile.

And the feedback we got from dealers and from consumer was that retail financing offering was a big plus in helping us close the retail gap that we had earlier in the season. So it's been actually a tailwind this year.

Okay, thank you.

Thank you. We have no further questions registered at this time. Back to you, Mr. Deschenes.

Great. Thank you, Maude, and thanks, everyone, for joining us this morning and for your interest in BRP. We look forward to speaking with you again in June for our first-quarter results. Thanks again, everyone, and have a good day.

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