BRP Inc (DOOO) 2014 Q4 法說會逐字稿

Hello, ladies and gentlemen. Welcome to BRP Inc.'s fourth-quarter and fiscal-year 2014 financial results. The call is about to begin.

I would now like to turn the meeting over to Mr. Pascal Bosse. Please go ahead.

Great. Thank you, Maude. Good morning and welcome to BRP's fiscal 2014 fourth-quarter and year-end results conference call.

My name is Pascal Bosse, and I am the new Corporate Director of Communications, Public Affairs, and Investor Relations. With me this morning are Jose Boisjoli, President and Chief Executive Officer, and Claude Ferland, Chief Financial Officer.

Before we move to the prepared remarks I would like to remind everyone that certain forward-looking statements will be made during the call that are subject to a number of risks and uncertainties. I invite you to read BRP's MD&A for a listing of those.

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

Thank you, Pascal. Good morning and thank you for joining us today for our 2014 fiscal year-end earnings conference call. Fiscal-year 2014 was most certainly a banner year for BRP.

First, we celebrated an important milestone in the history of our Company, as 2013 marked our 10th anniversary as an independent company. The year was also highlighted by our initial public offering last May.

We are very proud of the fact that we were the recipient of the IPO of the Year award as part of the annual Canadian Dealmaker Awards. Strong of these successes, I would like to take the opportunity to thank everyone at BRP, all 7,100 of our employees around the world, whose dedication, hard work, and passion have allowed us to become the Company that we are today.

During fiscal-year 2014, we achieved record revenue of CAD3.2 billion, the first time in the history of our Company that we have exceeded the CAD3 billion mark in annual sales. Our sales have increased 10% over last year, driven by a 15% increase in Year-Round Products revenue.

Our international operation continued to demonstrate strength, posting a revenue increase of 10%, despite that several of our markets throughout the world are still facing weak economic climates.

Our gross profit margin for fiscal-year 2014 was 25.3%, a slight decrease of 20 basis points from the prior year due to higher sales program costs and the ramp-up of personal watercraft production capacity in Mexico. Overall, our performance resulted in a solid 14% increase in normalized EBITDA and a 4% increase in basic normalized EPS. Claude will take you through our financial results and our guidance for fiscal 2015 in greater detail in a moment.

During the IPO roadshow and through our first three quarters as a public company, we introduced and updated you on key strategic initiatives. Now that we have closed the first year, I am proud to say that our accomplishments are a reflection of the sustained effort of our team to execute on these initiatives.

For fiscal-year 2014 was strong for product introduction, and our focus on innovation was evidenced throughout the year, with the introduce of the new Sea-Doo Spark; the launch of the Maverick and Commander for passenger models; the Spyder RT, with the new 1.3-liter high-torque engine; and the new 900 ACE, the most efficient four-stroke engine in its category, available on many Ski-Doo and Lynx models. The market reaction and consumer reception to all these products have been very positive.

Another of our key strategic initiatives is to grow revenue from Year-Round Products. On that note, the past year was the first for which revenue from Year-Round Products were higher than Seasonal Products. This was mainly driven by growth in the side-by-side; and keep in mind that we only entered this market in December 2010, so quite a progression here.

In term of our objective to extend our dealer network in North America, our stated goal was to open between 35 and 40 new dealers, primarily in the Sun Belt. I am pleased to report that the final tally for the fiscal year was 38 new dealers signed. Moreover, we expanded the North American side-by-side and roadster dealer coverage by 7%.

We are continuing on this momentum with a goal of signing between 65 and 75 new dealer in fiscal-year 2015, and will improve side-by-side and roadster coverage by another 10% to 12%. Our stated goal remain to have between 200 and 300 new dealers by the end of fiscal-year 2017.

Turning to our initiative to grow our international sales, as I just mentioned, we registered growth of 10% in international revenue last year. The growth is positive, but it came slightly lower than we hoped, and mainly because of some key market in Europe are still facing continued economic uncertainty, and also because of missed opportunity in some countries in Latin America.

Our Mexico strategy is key for our long-term. The new Queretaro factory in Mexico remain at the forefront of our strategy to support demand growth and to improve profit margin.

As we mentioned, last quarter our first off-road vehicle engine came out of the line in November 2012. Our Sea-Doo Spark production began in August as planned, and we are expecting that approximately 50% of traditional watercraft will be manufactured in Mexico in fiscal-year 2016, and 100% by the end of fiscal-year 2017.

Finally, the ramp-up of our watercraft hull production began this past October. The in-sourcing of hull fabrication is proving to be more difficult than anticipated; and consequently, some shipment of watercraft will be delayed from Q1 to Q2.

This is not expected to affect our retail sales, as there is sufficient product in the network. But we do expect our Q1 result to be impacted by this revised ramp-up plan.

Despite these near-term challenges, we remain on target for absolute margin improvement of between CAD20 million and CAD25 million by fiscal-year 2017.

We are very proud of our award-winning product and wanted to point out that we received a number of prestigious awards last year including: the 2014 Innovation Award from the National Marine Manufacturers Association for the Sea-Doo Spark; the 2013 Good Design Award for the Sea-Doo RXP, Can-Am Outlander, and Can-Am Spyder RT; the 2013 RedDot Design Award for the Ski-Doo Summit; and finally, the American Snowmobiler 2013 Best New Tech Award for the 900 ACE engine. These awards recognize our continuing commitment to product innovation in the power sport industry.

Let's now look at our performance on a segment-by-segment basis in the quarter, beginning with Seasonal Products. Revenue increased by 10% in the quarter. As we all know, the winter season has been very long in North America, with excellent snow coverage, all of course leading to a very strong snowmobile season.

This industry growth was much better than what we had anticipated. And when we look at the Ski-Doo inventory at dealers, it is at a historical low level. As of January 31, the North American snowmobile industry and BRP retail were up mid-double digit.

On the international side, despite below-average snow coverage, the Scandinavia snowmobile industry is up low-single digit, with BRP retail up high-single digit season-to-date. Note that the Scandinavia season ends at the end of June, versus the North America season, which ends at the end of March.

The Russia market was more difficult this year due to poor snow coverage; and there is no doubt that the political and economic instability is having an impact on our retail performance. Russia is a key market for us, and the significant decline in the ruble in the past six months versus the euro most certainly puts pressure on profitability and the demand in that market. We are therefore prudent in our planning for the upcoming fiscal year.

Before we move to our personal watercraft performance in the quarter, I think it is important to take you through the snowmobile season cycle, to fully appreciate the dynamic of this industry. If you look at slide 9, in April, following the end of the season, we take dealer orders based on forecast industry trends. From June to December, production is planned, and started during the summer, and it ends in the first week of December.

The snowmobile retail season, as you know, is very short and highly influenced by the timing and the quantum of snowfall. The season runs from October to March in North America, with the retail peak taking place in late December, early January.

For the season ending this weekend, over 50% of retail occurred after the last day of our snowmobile production. As such, the production lead-time prevents for any volume adjustment when the industry over- or under-performs versus the forecast. We prefer to lean on the conservative side, so that we are not left with high level of dealer inventories at the end of the season.

So in terms of what this all means for us, we started season 14 with the lowest level of network inventory since 2001. And at the moment, we are ending the season with network inventory at an all-time historical low. This is important because it bodes very well for our next wholesale season.

On the flip side, dealer inventory being at an all-time low, we saw some shortage at certain dealers since February. As a result, we believe we lost some market share in February and March.

Now turning to model year 2015, three weeks ago we hosted our Club Ski-Doo and introduced a very exciting lineup of snowmobiles, highlighted by the Summit X T3 package, with the longest track at 174 inches and the tallest lug ever offered by an OEM. This new Summit offers incredible floatability and, despite the very long track, remain very agile because of our unique T3 motion suspension.

We also introduced the new Renegade XRS, the most specialized crossover sled in the industry, with reinforced chassis, with running boards and bottomless racing shocks. We announced our new response angle front suspension, RAS2, which will be available on nine of our snowmobile models.

We introduced our Intelligent Throttle control on the 600 ACE engine. And we also introduced the thumb- or finger-operated adjustable throttle on all 600 and 900 ACE model. This is an industry first that will be very popular with newcomers and with parental operators.

On the personal watercraft side, it is still early in the season for the North American industry, but we have witnessed that the prolonged winter has impacted some key boat show attendance. With regard to the Spark retail in the counter-season market, where we began our shipment last fall, it is meeting our expectation thus far, and the reaction to the product has been very good.

Our Year-Round Products revenue increased 22% in the quarter. The North American side-by-side industry is up low-double digit season-to-date, while BRP retails continue to outpace the industry. I am very happy with the progress we have made this year in side-by-side.

The important driver of our growth were the 10 new models we begin shipping in fiscal-year 2014 and the progress made on improving dealership coverage in North America. Competitive dynamics have certainly increased this year, with a lot of product news; but these environments are ones that motivate our teams to push innovation even further.

Looking at the North American ATV market, season-to-date the industry is up low-single digits driven by higher growth in the mid-cc segments. I am happy with our performance, as Can-Am ATV has gained market share in the high-cc segment.

For the off-road vehicle business, we have seen some weakness in retail in the last two months that we believe is caused by the very long and cold winter in North America. On that note, about 70% of our off-road vehicle sales are done in the Snow Belt market.

Now, with the flexible ordering management system, dealers have adjusted their order, which will affect Q1 deliveries. This is positive, as it provides us with weekly demand trend for all our models, allowing us to adjust production and not build dealer inventory.

On the roadster side, we started in the fourth quarter deliveries of our Spyder RT 1330, with the new high-torque 3-cylinder engine, and thus far we are very pleased with the market reception. From an industry perspective, at this point in the season the motorcycle industry is about flat.

Also, as an update, we have launched our new Spyder marketing campaign where we are leveraging celebrities such as Danica Patrick and Mark Messier showcasing our products. I encourage you to check out the latest videos available on YouTube. This new campaign is very refreshing and engaging.

Our Propulsion Systems revenue grew by 7% in the quarter. Early into the season, the North American outboard engine industry retail is up mid-double digit, primarily driven by growth in the pontoon segment, while BRP retail sales were up low-single digit.

This is explained by industry growth that was mainly driven by an increase in outboard engine sales on new boats versus the re-power business, which refers to putting a new engine on an existing boat. As we said in Q3, we expect this trend to continue for the next model year.

Evinrude has traditionally focused on the re-power segment, but we are actively working to be more present in the new boat segment. In June, we introduced three new outboard models directed at the fastest-growing boat segment, the pontoon category.

During the quarter, we begun shipment of our Jet Propulsion System to Chaparral and Rec Boat Holdings, and both OEMs have begun producing their new boats. We are happy to see the favorable response by the marine industry around our jet propulsion technology, and we are working with our boat OEM partners to facilitate the integration of this technology in additional boats platform for future model years. So far, the strategy has been successful as it is improving our value proposition to the boat OEMs, allowing them to better differentiate themselves by offering a unique propulsion system.

On the Parts, Accessories & Clothing side, the overall business was up 17% in the quarter. Growth in PAC was primarily driven by off-road and snowmobile-related vehicle parts, accessories, and clothing sales.

We also have begun the transfer of our PAC inventory from our Sherbrooke distribution center to a brand-new state-of-the-art third-party-operated facility near Montreal. We believe this will greatly enhance our efficiency and service level to our dealers.

With that, I will pass it over to Claude for a review of the financials and the outlook. Claude?

Thank you, Jose, and good morning, everyone. This morning, we posted record annual revenues of CAD3.2 billion in fiscal 2014, an increase of 10% over fiscal 2013 and, as Jose mentioned, the first time that we have exceeded the CAD3 billion revenue mark in the history of our Company.

Our gross profit of CAD808 million for the year or 25.3% of revenues equated to a slight decrease of 20 basis points from last year. Normalized EBITDA came in at CAD380 million or 11.9% of revenues, which represented an increase of 13.5% over last year.

Finally, all of this resulted in a bottom line of CAD168 million in normalized net income, an increase of 15% compared to fiscal 2013, or CAD1.50 normalized basic earnings per share.

In terms of our Q4 performance by product category, 45% of our sales came from Seasonal Products; 30% were from Year-Round Products; 16.5% from PAC; and 8.5% from Propulsion Systems. The geographical breakdown for the quarter was 41% of sales from the US, 21% from Canada, and 38% from international.

On a full-year basis, 35.5% of our sales came from Seasonal Products; 37.5% were from Year-Round Products, marking the first time that sales of our Year-Round Products were greater than sales from Seasonal Products; 16% from PAC; and 11% from Propulsion Systems. For the year, the graphical breakdown was 44% from the US, 21% from Canada, and 35% from the rest of the world.

Turning to the normalized net income bridge for fiscal 2013 to fiscal-year 2014 on slide 18. We had a CAD91 million increase in volume and mix. This was offset by a CAD23 million increase in sales program costs, primarily related to a greater level of sales program in the ORV business, due to increased competition.

We had a CAD54 million increase in production and operating costs, mainly due to expenses incurred to support the initial stages of the transfer of PWC manufacturing to Mexico, higher investments in research and development projects, and higher stock-based compensation in relation to the IPO. We had a CAD5 million increase in D&A charge; a CAD26 million favorable for FX; and finally, higher financing costs and income tax expense.

Now, turning to the balance sheet, cash is down CAD467 million versus the beginning of the year, mainly as a result of the CAD529 million distribution to shareholders during the first quarter of fiscal 2014. At the same time, our long-term debt decreased by CAD165 million, mainly due to the $258 million Term B repayment following the IPO. Keep in mind that our debt reimbursement has been partially offset by an increase of CAD96 million due to the conversion of the US long-term debt into Canadian dollars.

We ended the year with free cash flow of CAD61.5 million. Just a reminder here: free cash flow for the year is down versus fiscal-year 2013, and this is mainly due to an abnormally low level of accounts payable we had at the end of fiscal-year 2012 due to early payments to suppliers. This situation positively impacted the first half of fiscal 2013 free cash flow.

Now, a quick update on BRP's North American powersport dealer inventory at year end. As compared to year-end fiscal 2013, dealer inventories were up 7%, all within Year-Round Products. So inventories of off-road models are up due to the introduction of new side-by-side models.

In addition, there is an increase for the Spark, which was offset by a decrease in traditional Seasonal Products as a result of the historically low inventory levels on the snowmobile side, as mentioned earlier by Jose. All in all, we remain comfortable with our current inventory position.

On slide 21, you will see the guidance that we are providing for fiscal-year 2015. For the year, we are expecting growth in Company's revenues of between 9% to 13%, driven by a 5% to 10% growth in Seasonal Products revenues, a 12% to 15% growth in Year-Round Products revenues, a 7% to 10% growth in our Propulsion Systems revenues, and a 10% to 15% increase in our revenues from PAC.

Normalized EBITDA is forecasted to grow between 11% and 15%. Our effective tax rate is expected to range from between 26% to 27%, resulting in normalized net income growth of between 10% and 17%.

We are forecasting normalized diluted EPS to range between CAD1.55 and CAD1.65, which represents a 10% to 17% increase, assuming a constant weighted average share count of 118.9 million diluted shares for fiscal 2015 and fiscal 2014. So, note here that in our guidance we are moving from basic to diluted per-share count. Also note that the depreciation charge increases CAD21 million when compared to fiscal 2014, as a result of investment in the business.

As Jose mentioned, there are some areas of concern for us that we have taken into consideration looking into the new year, one of which is Russia. Based on our conversations we have had with our partners, we have factored in a 20% reduction in volume in Russia compared to fiscal 2014 due to the geopolitical situation. At the EPS level, it impacts our guidance by an estimated CAD0.10 per share when compared to fiscal 2014.

We have also provided you with a forecast of capital expenditures for the year of a range between CAD165 million to CAD175 million.

Additionally, while it is not our practice to give specific quarterly guidance, we felt it was prudent to explain some of the items that will affect our fiscal first quarter of 2015 results, which we had already planned to be lower than last year. These items include: the timing of the side-by-side product launches versus last year; the higher intensity of internal projects, such as the costs related to the transfer of our PAC distribution to a third party; higher marketing expenses for campaigns for the Sea-Doo Spark and upcoming Evinrude product launches.

In addition, we have revised our plans to account for prolonged winter in North America that impact our summer and Year-Round Products sales and to account for the more difficult than anticipated production ramp-up in Queretaro. As such, we now expect first-quarter revenues to be down between 5% and 10%, and EBITDA to be down approximately 50% when compared with our first quarter last year.

The impact of this all has been taken into account in our full-year guidance numbers. As we demonstrated in our first year as a public company, we are confident in our ability to deliver on our guidance for fiscal 2015, despite the first-quarter challenges.

On that note, I would like to turn it back to Jose.

Thank you, Claude. Our financial performance in fiscal-year 2014 was strong, especially given the fact that some of our markets started underperforming in the second half of the year versus what we had anticipated. As such, we have introduced our guidance for fiscal-year 2015 with revenue growth of between 9% and 13%, and normalized EPS growth of between 10% and 17%.

As Claude mentioned, we have factored in our guidance several area of concern. One of it is Russia, our third-largest market. We generated the bulk of the CAD235 million of sales last year from Eastern Europe.

We remain mindful of the challenge we could face if consumer in this region were to postpone their buying decision. As such, we have been prudent in our forecasts and will continue to closely monitor the situation.

We have a lot of ongoing projects to improve the business long-term, and we will continue to aggressively focus on the things under our control. Product innovation and customer care are at the forefront of those things that have made BRP a leader in the powersport industry, and we will support our existing and our future dealers so they can keep growing their businesses.

To summarize, BRP has a short history as a public company and limited historical financials, but we have been a standalone business for over 10 years. We have always managed against our annual plans -- not quarterly -- and we will always do what is right for the business for the long-term.

After an excellent snowmobile season, we look forward to a warm and exciting spring season, and we remain very confident that we will deliver on our financial target for fiscal-year 2015.

With that, I will turn the call back to Maude for questions.

(Operator Instructions) Steve Arthur, RBC Capital Markets.

Yes, thank you very much and good morning. Just a couple of questions. I guess first just on some of the items pressuring Q1 margins, the manufacturing issues in Mexico, PAC distribution, and others you mentioned: can you give us just some sense of the status of those? And in particular, how comfortable are you that they are largely behind you now? And how much of that might drift into Q2 or beyond?

Good morning, Steve. The situation in Queretaro is under control. What happened, if I summarize the process, there is like the molding operation, the secondary operation, and the finishing operation. And at the same time we started the pilot run in July; we started production in October; we're going from one shift to two shifts to three shifts. And the ramp-up the way we had planned it originally was inefficient.

Then the only thing we have done, we decided to relax the schedule of the ramp-up. And some products that were supposed to be assembled in Q1 will be assembled in Q2 here in Valcourt.

But right now, we are producing hull every day. They are good. They are shipped to Valcourt. But we decided to relax the ramp-up to make sure that it would be as efficient as it can be and the quality would be there.

Then, we don't see -- there is some shift of watercraft, the GTI family, from Q1 to Q2. But there is no problem to finalize production in time, and we don't believe we will miss any retail.

On the distribution center, we are moving from Sherbrooke because our distribution center is quite -- was too tight, to a 3PL in [Sarcerre], Montreal. And the bulk -- we had planned -- typically March-April are low season for PAC shipment. Obviously, this year with the snow condition it's a bit different. But basically the bulk of all the parts are moving from Sherbrooke to Montreal in February, March, and April; and this is, obviously, incurring some cost.

Okay, thank you. Just shifting gears to the roadster product, can you give us just some sense of level of Spyder sales in the quarter? Either absolute numbers or year-over-year or some color there.

As well, just if you can elaborate a little bit more on the changing approach to market, the nature of your marketing campaign, target demographics, and regions, and so on.

Yes, I will give you color on the marketing, and Claude will come back on the sales. Listen, we are very happy with our marketing campaign.

As you know, the roadster was designed to please people who wanted to have a motorcycle but never crossed that line, to newcomers, and we're having a lot of women. We had to find a way to improve the awareness of the product in the market.

Right now the celebrity, leveraging celebrity, have been very good. We have Danica Patrick, who has a strong DNA. We have a Mark Messier, and so far, those two persons are very good spokesperson.

And if you look at the traffic on the Web, if you look at the videos on the Web, definitely this is generating a lot of momentum. And I have to be honest, it is very exciting and, like I said in my script, engaging.

That being said, it is very early in the season. We know that the demand for the RT 1330 is strong. We hear a lot of dealer -- I was with a lot of dealer in a Ski-Doo dealer meeting three weeks ago. A lot of customer have purchased their Spyder, but obviously in the Snow Belt they are not taking deliveries.

It's a bit difficult to read, but so far we are happy with our marketing campaign and very excited about this coming spring.

Okay. Good morning, Steve. In terms of retail sales, as Jose mentioned, still very early in the season; but during Q4 our retail sales basically increased 14% year-over-year versus Q4 fiscal-year 2013.

A big chunk of this increase, as Jose said, is based on the introduction of the new Spyder RT with the new engine, the 1330 triple engine.

That was retail sales, Claude, or production sales?

Yes, retail sales, yes.

Okay. Your wholesale or production sales, will those mimic that, or different?

Yes, very close to it, Steve. Yes.

Okay. Just a final question for me, just on the impact of mix on revenue and margins in Sea-Doo. Any way of quantifying what the relative margins were for Spark versus the other Sea-Doos?

Like we have told you when we introduced the Spark, our margin and percentage on the Spark is similar to the watercraft, the GTI family we have, one we produce here in Canada. We are still sticking to our plan for this year, where we believe we will sell CAD65 million to CAD70 million of sales of Spark; cannibalization of CAD35 million; and net sales of CAD30 million to CAD35 million in this fiscal year.

The demand for Spark is good. I was myself in Brazil and Chile about a month and a half ago; I met customers and dealers that are happy with the product. And so far product is delivering, or we are having the success that we are hoping for.

We don't think we can increase much the quantity in this fiscal year for Spark because we need to shut down the assembly line in Queretaro for three to four months to extend the assembly line, to start the assembly of 50% of the traditional watercraft later this fall. That is why we don't have much flexibility this year for the Spark.

That being said, we continue our program on investing in marketing, because we are there for the long-term and want to really create the momentum for fiscal-year 2016 and beyond.

Great. Thank you very much.

Robin Farley, UBS.

Good morning. Thanks for taking the questions. Actually [Artina] for Robin. I have two quick questions.

Seems like your Year-Round Products came in a bit below expectation, or what the full-year guidance would have implied for Q4. What were the driving factors there? If possible to put more color on side-by-side versus ATV and roadster shipments and how that compares to retail sales in Q4.

And then any color on retail market share in side-by-sides would be helpful as well. Thank you.

Yes. First, on the side-by-side on the wholesales, we were close like you said, but we saw some slowdown in the third quarter from Russia that affected and some other country. But not much more precision than that.

On the retail side, we are very happy. If you look at the season 14 year-to-date, the industry is tracking to mid-double digit and we are twice faster than this industry momentum.

Then I am very, very happy of the traction that we are having with the side-by-side. Again, we introduced a lot of new model in September. We started production of the Maverick XMR, the Maverick four-seater, in the second half of the year. And we just started delivering the Commander four-seater late January, beginning of February. But so far, very happy with the retail momentum.

Great. Any commentary on market share in side-by-side in Q4 that you could give us?

Q4 is about in line with the trend of the year. The industry is mid-double digit, and we are twice this growth.

Then the trend, to be honest, is quite equal quarter-to-quarter retail, the industry, versus us.

Okay. That's helpful. Thank you. Then one quick follow-up. We saw your largest competitor introduce a side-by-side-like ATV that created a bit of buzz in the market.

In terms of innovation and what you think of that product as a new category, in terms of expanding the ATV market, any color there? Thank you.

It is very early to say or to comment on what it will be -- how big it -- what will be the success of this product line. Basically it is a single-seat passenger side-by-side.

I think it will appeal to some customer; but very difficult to read today how it will impact the market and how big it will be. That is the only thing I can say at this point.

Would you introduce something like that, do you think? Or how long would it take, if you do?

We have a lot of priorities to grow our business in the off-road business, and obviously you will understand that for competitive reasons we cannot -- I cannot answer those direct questions on products.

Right, right. Thank you.

Cameron Doerksen, National Bank Financial.

Yes, thank you. Good morning. I guess I just want to come back to your commentary on the Russian market. You mentioned there that your guidance assumes a 20% to volume decrease. I believe that is what you said.

I am just wondering if that is the type of decrease you are seeing right now, or in recent months. Or is it something that you just expect to get worse from where it has been in the last quarter or so?

We have been in Russia for 20 years, and we have been working with our existing distributor for a bit more than 10 years. And we did go through a cycle, up or down, during those 10 years -- those 20 years, but 10 years with our existing distributors.

We saw some softness. Year-over-year we saw some softness in Q3; about the same level in Q4. But that was, we believe, at the time, created more by the ruble depreciation.

Because I don't -- all product who are imported in Russia are on the same level of playing field, and no distributor can absorb a difference of 20% in the cost of the product. Then everyone will adjust into a period of time their pricing, and this put some pressure on the demand.

Then we saw the market or demand for the product softening down in Q3, accelerating in Q4. And we had discussion since what happening in Ukraine with our distributors; and for the time being, we felt that it was prudent to adjust our planning for fiscal-year 2015 by 20%. And that is compared to actual 2014.

I would like to highlight that -- and I will give you some colors. In the last 10 years, our volume in Russia have grown by about 20% a year, and that includes 2008 and 2009 where the demand had declined by quite a lot.

Then we had a very, very good progression in Russia. It is very difficult to read how things will go. But that is why in our guidance we decided to put a 20% haircut versus last year.

That is quite a significant gap versus what was the typical growth year-over-year. And we are comfortable with this, but obviously we will monitor it with the distributor very closely.

Okay. No, that's great. I guess second question just on the Latin American market, you mentioned in your prepared remarks that you felt that maybe you have missed some opportunities there. You touched on it a little bit, but maybe you can go into a little further detail on what your plan is to take advantage of the Latin American market in the next couple years.

No, what I meant in the comment, my script -- for sure, Brazil is good, Mexico is good. Where we had a missed opportunity is Venezuela and Argentina.

Obviously, everyone knows what is going on in Venezuela. It is not a big market for us, but it was growing. Now it is slowing down.

And the other one is Argentina. You know that the government in Argentina is trying to balance their import and export, and our distributor has a lot of difficulty to bring in the country products.

This was a market growing at a very fast pace, and now it is slowing down. This is what I meant in my comments.

The biggest market in Latin America is definitely Brazil. It is growing at a good pace, at slower than what it was in the last two years, but it is growing still at a good pace, and we will take the advantage of it.

Okay. No, that's a good clarification. Just final one for me, just on I guess the impact of weather. You have indicated that the exceptionally long winter here has impacted the Year-Round Products business, for obvious reasons.

But I am just wondering if you can maybe talk a little bit more about what it is doing for the personal watercraft business and the outboard engine. You mentioned that obviously boat show attendance has been down. Is that something you expect will really rebound once we actually start to get some warmer weather?

I was with dealers from the Snow Belt three weeks ago in Quebec City, and we had a long discussion. Obviously, a few weeks ago we were still beginning of March, but there is no doubt that in the Snow Belt right now many dealers are still in the snowmobile season mindset.

And the minute the weather will turn better, they will turn around their showroom for summer product, and we believe that the momentum will go from there. A lot of dealer have watercraft or roadsters or ATVs or side-by-side -- a bit less ATV and side-by-side, but I would say watercraft and roadsters sold to their customer, but the customer is not picking up the product because there is no need to do it.

Then, that is why on the off-road side with the monthly ordering system we saw some dealer adjusting their order in February and March. But we believe at the minute that the spring will really come through, the momentum will come back.

Nobody is panicking in the network. We just will be very happy and thrilled when the spring will turn around.

Yes, as well I think everybody. Thanks very much.

Alvin Concepcion, Citigroup.

Hi, good morning. You talked about season-to-date trends, where you're outperforming very nicely in side-by-sides and ATVs. I am wondering, first of all, what specific time period that was.

And secondly, I am wondering if -- you mentioned retail sales were impacted in the first two months because of weather. That is pretty clear. But would you be able to talk about how retail performed in the states where there was no weather impact?

If I take ATV, so far since the beginning of the year, so far the industry is up low-single digit and we are up high-single digit; and we are outpacing the industry with our ATV sales. So far we are happy, and we don't have the number yet for February, but if I look at Q4 the industry was about flat and we were up mid-single digit.

There is some momentum there. We are outpacing in the ATV business the industry.

On side-by-side, like I said before -- I think to Robin -- the industry is up since the beginning of the year by about mid-single-digit. That is the season-to-date, and every quarter was in that ballpark. We are about twice this industry momentum.

Then we are happy with our momentum at retail. What I said in my comment was at the old sales volume -- I mean, with the monthly ordering system the dealer are very quick to adjust their order if the retail is not there, and we saw some softness in February and March. I think this can pick up when the spring come back.

But we don't have any industry indication at this point for February and March.

Got it. Thanks. Have you seen a step-up or change in the current competitive promotional environment in ATVs and side-by-sides relative to the end of the quarter?

Not in Q4, but definitely some of our competitor have launched aggressive program in March, which is early into a season. Typically you see a program on the off-road business coming out more in May-June; and some of our competitors have decided to launch program in March. That is two months earlier than what I will call typical.

We decided to follow because we want to make sure that we have a competitive offer for the customer when the spring turn on. But definitely, there is some more programs in the market early in the season.

Great. Shifting focus to snowmobiles, you have some shortages at dealers which is, I suppose, a good problem to have. Do you believe those sales are completely lost? Or do you think consumers will wait for the next season and therefore there is pent-up demand?

That is a difficult one. I would say that some customer -- we saw that part more in the US than Canada. We saw that in the Midwest, starting mid-February and March, where a customer would go to the store, ask for a Ski-Doo MXZ 800, and there was none available. Sometime he would switch to another Ski-Doo model, sometime to a competitive brand.

But obviously, the winter season in the Midwest have been exceptional and some people decided to buy right now. To be honest, we hate to lose market share, no doubt about that. But we like the fact that our dealer have made money this year.

They came to the Club very enthusiastic about model-year 2015. We have a very, very competitive lineup in model-year 2015, particularly in the cross-country with the XRS and the mountain, the new T3 package.

And we believe our spring break sales will be solid. This is why we will have a very, very strong second half of the year, and we will have the result of those spring break sales when we are together on the Q1 call in June.

But overall, I hate to lose market share. We all hate to lose market share at BRP. But at least the industry was healthy, and the dealer have made money, and it's very good for the industry overall.

Great. Thank you very much.

(Operator Instructions) Benoit Poirier, Desjardins.

Yes, just to come back on the Spyder, I understand the good details about your marketing campaign. But I think your new engine also opened up a new replacement cycle.

So when we look at your current sale, or let's say your expectation for this year, how much of the volume is expected to be driven by the replacement cycle as opposed to new customers?

To be honest, Benoit, I know that there is many customers that are replacers. There is also consumer. But I don't have at this point -- we don't have at this point the split between one or the others.

I can give you some qualitative comments, where a lot of people who used to own a Gold Wing for example that now are really, really interested by the RT because it is an in-line triple-cylinder engine. And this is definitely new customers.

But there is also a lot of customer who purchased 2010, 2011, 2012, 2013 models that are trading in. But we don't have that figure yet. We don't have that color.

Okay. Perfect. That is my one, and I will get back in the queue. Thank you.

Martin Landry, GMP Securities.

Good morning. Maybe going back to the upcoming Q1 and the impact of some of your factors, I would be curious to hear -- you were talking about the transfer of your PAC distribution; you're talking about the production issues of Sea-Doos; you are talking about Russia and the long winter.

Would it be possible maybe to rank them in order of magnitude for the impact on Q1?

Good morning, Martin. As you know, it is not our practice to give specific guidance on future quarterly results. But we thought, given the size of the variation that it would be prudent to explain to you guys the reason for such a variance.

So if I try to break it down, I can easily break it down into two pieces. Half of the lost profitability versus a year ago mainly comes from a change in volume, a different volume and mix versus fiscal-year 2013. I would like to remind to you all that last year in Q1 we were producing a lot of Maverick because we were filling in the pipeline.

If you remember we had just started to ship the Maverick at the end of January 2013. So all throughout Q1 of last year we were filling up the pipeline with a lot of Maverick.

Also, the impact of the delayed production due to the more difficult ramp-up in the hull production in Queretaro is causing some PWC, as I mentioned earlier, to be delayed from Q1 to Q2 of this year. So half of the impact is pretty much related to volume and mix on profitability.

And the other half is on those one item that we were talking about earlier on.

Okay. All right. Thanks. That's helpful.

Craig Kennison, Robert W. Baird.

Good morning. Thank you for taking my question. This one has to do with your distribution plans and expansion, especially in the Southwest.

I am interested in the profile of the dealers you are adding and whether they are taking on a broad swath of your portfolio or just specific product lines. Also, whether you're moving in as a top vendor, or you're willing to move in with one or two products and then try to gain share from there. Thank you.

Good morning. It is a tough question because there is many, many different cases, as you can understand. Our first choice is to find a high-profile businessman who is ready to open up a BRP store. This is our first choice.

And we have all type of people, our dealers that are opening right now where it is someone who owned car dealerships, someone who owned Harley stores, someone who owned a different business, and they open up a store in an open area and take all the product line. This is definitely our first choice.

At the same time, in other area where it is more difficult, sometime we are opportunists and we go in an existing dealer, a multiline dealer, and he drop other line. And he take, let's say for example, the three Can-Am product lines; we see that also quite a lot.

Our first choice again is BRP stores; second choice, multiline. It is a mix of all this.

But I am happy of our progress last year. I can assure you, some of you might see the number of dealers, 65, 75 next year is on the low side, but we prefer to sign quality dealers than go too fast. Because when you sign a dealer it is for long-term, and it takes a lot of energy to sign, but also to get him trained and to make sure that he is a performance dealer.

That is the way -- that is the best thing I can tell you at this point.

That's helpful. Thank you.

Tim Conder, Wells Fargo Securities.

Good morning. This is [Mark] in for Tim. I apologize if I missed this earlier, but could you describe the impact of the stronger Canadian dollar to earnings for the quarter year-over-year and also year-to-date?

Then secondly, how much of this exposure has been hedged going forward versus the prior-year level?

Good morning. The impact of the foreign exchange on a year-over-year basis on our sales for the quarter was CAD53 million. On the total-year basis, impact on revenues versus fiscal-year 2013 is CAD114 million.

We are pretty much hedged on the 12-month period on the US dollar and the euro currency. Where there might be fluctuations is on a week-to-week and month-to-month basis. So although we are hedged on a 12-month basis, we can see fluctuation on a quarter-to-quarter basis.

As we have seen the US dollar and the euro getting stronger versus the Canadian dollar, that generated variations on our P&L as well. Therefore, when you look into Q4, the three-month period, you will see a net gain of about CAD7 million on our P&L in the Q4, mainly due to the quick and rapid movement of the US dollar currency versus the Canadian dollar.

On a total-year basis, this net gain represented about CAD27 million in fiscal-year 2014.

One other very important element that we should not forget is that you see in our financial statement the impact of the conversion of the long-term debt into Canadian dollars. For the total year, the impact due to the strengthening of the US dollar amounted to CAD96 million for fiscal-year 2014. Obviously, this item is being normalized out of our results.

Thank you.

Chris Bowes, Canaccord Genuity.

Hi, good morning. Just a quick question for me. On the Q4, the gross profit, it's mentioned that the profit margin decreased due to unfavorable product mix in Seasonal Products. I am wondering if you can tell me what that mix was, that was negative.

When you compare with last year, if you remember, in Q3 we explained that we delivered snowmobiles earlier than we did in the previous year because of the dealers' demand to get the product sooner in their showroom. So when we look at the mix in Q4 of this fiscal year versus last year, we had less snowmobile deliveries in terms of volume versus the previous year.

And the mix where we delivered -- we tried to deliver the high-level units, the mountain units earlier in the season -- so the mix was not as strong in Q4 of this fiscal year as compared to Q3 of the previous fiscal year. And also as we have explained, we have started to deliver the Spark PWC, and the Spark PWC has an average price and a margin that is lower than our average PWC margin, but at the same level as our previous entry-level PWC.

Okay, thank you.

Mark Petrie, CIBC.

Hey, good morning. I just had a quick question, regarding the dealer additions and the pace being up versus fiscal 2014. What do you feel is driving that? Is it just a matter of a more fulsome assortment on the off-road vehicles and the side-by-sides I guess specifically?

And how should we think about that pace going forward as the assortment continues to grow?

First, we have had about -- we have had additional people internally that are working in the field to visit those prospect dealer or businessman. We have had people this spring -- the spring of 2013; and you saw the momentum increasing in the back end of 2013.

Now all the team is in place; the process is in place; and we believe that we can sustain a pace of about, like we say, 65, 75 dealer a year addition over the next few years. And that is why we're very confident to hit the 200, 300 dealers by the end of fiscal-year 2017.

Then it's just that we have had additional resources. We proved the process to start with, have had additional resources in the spring of 2013.

Obviously, as I have said during the roadshow and many of you, the sweet spot is about 1,250 dealers in North America, which will be 250 dealers by the end of 2017, obviously plus or minus a few dealers.

Thank you.

Kenny Lee, BMO Capital Markets.

Hi, good morning. I was wondering if you can quantify how much of the costs related to Mexico had an impact on margins during the quarter. Thank you.

Yes, in terms of costs relating to Mexico in the Q4 of fiscal-year 2014, we are looking at about CAD6.5 million additional cost versus the previous year.

Okay. That's all I had. Thank you.

Benoit Poirier, Desjardin.

Yes, just with respect to your Spark sales, isn't the right mix you were expecting initially, the most popular model to be the three-seater with the high-cc engine and also with the brakes? I am just wondering if the mix you're selling right now is mostly in chain with your -- is mostly in line with your initial expectation. Thank you.

Yes, I won't comment, Benoit, for North America because the season didn't really started yet. But I was in Brazil and Chile, again about a month and a half ago, and over there the mix seems to be a bit richer than what we had planned. That mean more people are going for the three-seater, the HO engine with the brake. And to be honest, the number of accessories also that they put on is more than what we had planned.

Then the mix seems to be a bit richer in Brazil, Australia, and New Zealand, the counter-season market. But I don't know yet about North America.

Okay. Thank you very much, Jose.

Thank you. There are no further questions registered at this time.

Thank you, Maude. This concludes today's call. I want to thank all of our participants for their interest and for their support.

I invite you to join us for our first Annual Shareholders Meeting that will be held here in Valcourt on June 12, at which time will also report our first-quarter earnings. So thank you very much and you all have a very good day.

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