Welcome to BRP Inc's 4th Quarter and Fiscal Year 20 15 Financial Results. The call is about to begin. I would now like to turn the meeting over to Mr. Pascal Bossier.
Good morning, and welcome to BRP's 4th quarter and year end results for fiscal 2015. Joining me on the call this morning are Jose Boisjoli, President and Chief Executive Officer and Sebastien Martel, Chief Financial Officer. Before we move to the prepared remarks, I would like to remind everyone that certain forward looking statements will be made during the call that are subject to a number of risks and uncertainties. I invite you to read DRP's MD and A for a listing of those. Also, during the call, references will be made to supporting slides, and you can find the presentation on our website at brp.com under the Investor Relations section.
So with no further ado, I will turn
the call over to Jose Boisjeli. Thank you, Pascal. Good morning, everyone. BRP reported this morning its result for fiscal year 2015, highlighted by double digit revenue and profitability growth and a good free cash flow generation. Starting with an overview of the financial result on Slide 4.
Revenue increased 10% compared to prior year to reach $3,500,000,000 The increase was driven by a 14% increase in revenue from North America, offsetting the weaker performance in Eastern Europe. Our gross profit margin for full year was 24%, a decrease that is notably due to unfavorable currency exchange rates impacting margin by 100 basis points. Overall, our performance resulted in an 11% increase in normalized EBITDA and a 16% increase in diluted normalized earnings per share compared to fiscal year 2014. I would like to highlight that the effective tax rate was lower than expected and Sebastien will cover the financial results in greater detail in a moment. So all in all, the year turned out more challenging because of the shift toward the back end of the year, but we nevertheless stayed the course and we focus on the execution of our plan to deliver solid results.
Moving to the business highlights on Slide 5. Revenue from North America increased by 14% compared to prior year. Our retail sales for seasonal and year round product increased by 8% when compared to last year. Revenues from international increased moderately by 3%, driven by the strong reception of the Seadust Spark and higher volume of year round products. This increase include a 25% decline in revenue from Russia.
Excluding Eastern Europe, revenue from international increased by 8%. Operationally, we also accomplished a lot and I'm proud of the collective effort of our teams to execute on the strategic initiative. 1 of the objectives is to constantly bring to consumer market shaping product and this year again was no exception across all our product line. In snowmobile, we introduced the T3 package available on the Sumix, X Mountain, sled, an offering that is unique in the industry and the Renegade XSAD S, a sled that is having a strong market success in the crossover segment. In year round product, we introduced the Outlander L family of ATVs, a brand new offering in the mid CC category that bring the Can Am DNA to the largest segment of the ATV market.
The Maverick XDS and XDS Turbo, the 1st side by side available with a factory installed turbocharger and last but not least, the Can Am Spyder F3, a brand new approach to the roster with a lowered seat, layback riding position and a unique look that will attract to a broad customer base. And in propulsion system, we introduced the Evinrude Etech G2, a completely new and differentiated offering in the outboard engine business. This launch has created a lot of noise in the marine industry so much that we successfully signed 20 North American boat builder throughout the year. And bulk builder throughout the year. The market reaction and consumer reception to all these new products has been very positive.
Another of our key strategy is to grow margin long term. And while we witness a decrease in gross margin, we are very much focused on project execution such as completing the transfer of our personal watercraft assembly to Mexico. We also surpassed our surpassed our targeted 65 to 75 new dealers in North America with the addition of 76 new dealers in fiscal year 2015. Finally, before closing on operation, I would like to take the opportunity to thank all our employees for their engagement and hard work and for delivering the best ever performance on the health and safety front. Our workplace accident rate stood at 0.87 for last year, a result I consider to be world class performance.
We strive to nurture a culture where employee look after the safety of their colleagues as well as their own and I am pleased of this year accomplishment. Turning to year round products. Our revenue bounced 53% in the quarter driven by shipment of the Outlander L ATV family for a full quarter, shipment of the Maverick XDS and XDS Turbo and shipment of the Can Am Spyder F3. Also, we witnessed a change in ordering behavior from our dealers in North America with some ORV shipment shifting from Q3 to Q4 as a result of the monthly online ordering management This tool enables our dealers to better match deliveries with the spring retail season, which explains part of the bump in year round product revenues. Industry wide for ATV season to date, the industry is about flat, while Can AmityV retail is up low single digit driven by the mid cc segment.
The feedback of our customers to our product offering is encouraging with a complete lineup and I'm happy with the market reception of the Outlander L family of ATVs. For side by side, the North American industry is up mid teens season to date and we are trending behind in term of market share due to continued growth in the utility segment that we do not compete in, representing about 60% of the volume today. No doubt that the off road vehicle business is highly dynamic and this is an environment where BRP thrives through product innovation and value proposition to consumers. This segment will be an important earnings lever for several years to come and I look forward to bringing to the market innovative product that will help BRP grow its year round product business. On the roster side, very early in the season, the motorcycle industry is up low double digit, driven by low displacement sport motorcycle, while Can Am is up high single digit.
Following the launch of the Spyder F3 in September, the demo tour had been traveling across the U. S. And Europe to promote the product with a riding is believing claim. We started shipping to dealers in January and so a limited number of units have been retail, but I'm very pleased with the excellent reviews worldwide. From its configuration, the Spider F3 opened new opportunities to grow the lineup and it is appealing to a large audience, the cruiser market, representing an estimated 2 third of the traditional motorcycle industry.
On Slide 7, an update on the Uarez 2 project. We broke ground in November the construction of the 400,000 square foot facility is well on its way. The proximity to our existing Juarez 1 plan provide us with operational synergy with supplier and excellent talent pool and flexibility to leverage the existing employee base to reduce startup risk. The project is on track and we are planning to start up production on the back end of the Q4. Now the seasonal product on Slide 8.
Revenue decreased by 4% in the quarter compared to prior year. The decrease in revenue was mostly driven by the situation in Russia and Scandinavia. As of January 31, the North American snowmobile industry was up mid single digit season to date with Ski Doo gaining market share. We had a late start to the season in the East, but the average snowfall combined with sustained cold temperature in January, February March preserved the snow coverage, so overall we had a good year in the East. However, in the Midwest and on the West Coast, snow conditions have been variable with weak precipitation, noticeably in the mountain where we had a poor season.
At International, Scandinavia had a 2nd year of weak snow coverage and so the industry is down low double digits season to date with BRP retail slightly below the the North about 20% and because we are expecting another good season, we started manufacturing earlier this year. The Spark continues to pull new consumers to the category with a value proposition that is unique in the industry and as such we are increasing our availability of the Seadust Spark in fiscal year 2016. We will continue to strategically position the Seadust Spark unit in the sales channel here and abroad. We are also on track to produce approximately 50% of traditional watercraft in Mexico in fiscal year 2016, reaching 100% by the end of fiscal year 2017. The financial benefit of the transfer are muted by the fact that we are transitioning with production at 2 locations this year.
We are nonetheless on target for absolute margin improvement of between $20,000,000 $25,000,000 by fiscal year 2017. Now turning to model year 2016, a month ago we host our club Ski Doo and introduced a solid lineup of snowmobile highlighted by the Renegade and Zulu model, a set that is inspired by an adventure motorcycle to deliver all around capability wherever it's being taken the Summit Burton Edition, a sled that is appealing to snowboarders and skiers looking for easier access to the backcountry the 1200 4 stroke engine option on the XS chassis extending the availability of the intelligent throttle control technology with its 3 driving mode and finally the MXZ Blizzard snowmobile with a 129 inches track and excellent value available all in season. We also introduced new technologies such as the industry first adjustable ski, the Pilot TS, a redesigned ski providing riders the ability to instantly adjust ski bike for changing snow condition and riding styles. The new Pilot Ski comes standard on 7 models and is available as an accessory, which we believe will be very popular. Slide 10.
Our propulsion system revenue grew by 44% in the quarter to $108,000,000 directly impacted by the ramp up in deliveries of the Evinrude Etech G2. It's still early, but the North American season kicked off with attendance at boat show trending positively and continued good reaction to the G2. 7 months into the season, As we mentioned on previous earnings call, the industry growth is mainly driven by an increase in outboard engine sales on new boats versus the e power business. As we said in Q3, we expect this trend to continue for the next model year. Evinrude has traditionally focused on the LEAPOWER segment, but we are actively working to be more present in new boat segment.
I am pleased to report that we've signed 20 boat builder in North America and 2 at international since the G2 launch and we've signed 78 Avenue dealer in North America and 8 at International in the past year. We are also working with both OEM partners to facilitate the integration of the G2 and color matching option for future model year. Finally, on propulsion system, we continue to work with Chaparral and Rec Boat Holdings in North America to distribute our jet propulsion system and we continue discussion with other boat OEM brands. On the part, accessories and clothing side, the overall business was up 2% in the quarter. The growth came primarily from FX and from snowmobile related vehicle part, accessories and clothing in North America.
And this was offset by lower sales of snowmobile pack in Scandinavia and Russia. We've just introduced our model year 16 snowmobile lineup and our offering is solid with the Pilot TS Key and innovative quick adjust limiter strap on the Summit models and a wide selection of riding gear. Before turning over to Seb, just an update on our objective to optimize our dealer network in North America. We added a total of 76 new dealer in fiscal year 2015 that added to the 38 from last year brings the total count to 112 since the objective was introduced. Moreover, we explained we expanded the North American side by side and roster dealer coverage by 10%.
We are continuing on this momentum with a target of signing between 7585 new dealer in fiscal year 2016 with a goal to add between 200 and 300 new dealers by the end of fiscal year 2017. And with that, I will turn the call over to Seb and will return for closing remarks and outlook. Sebastien?
Thank you, Jose, and good morning, everyone. This morning, we reported revenues of $1,068,000,000 for the Q4 of fiscal 2015, an 18% increase from the Q4 of last year. As indicated by Jose for the 12 months ended January 31, revenue was amounted to $3,500,000,000 a 10% increase over fiscal 20 14. Our gross profit amounted to $289,000,000 for the quarter, resulting in gross margins of 27.1 percent, an increase of 2 40 basis points over last year. Normalizing for elements, most notably the $112,000,000 loss on our U.
S. Dollar denominated debt. Normalized net income stood at $116,000,000 an increase of $68,000,000 compared to the same period last year. Normalized and normalized diluted earnings per share is $0.98 For the full year, normalized EBITDA amounted to $421,000,000 and ended at the higher end of our guidance and normalized EPS at $1.65 is above our guidance. Foreign exchange rates were quite volatile in the quarter with a material appreciation in the U.
S. Dollar and this drove the majority of the $12,000,000 foreign exchange gain recorded this quarter from the revaluation of balance sheet items and it impacted our EPS EPS which impacted EPS favorably by an additional $0.03 So when you consider the foreign exchange gain and the tax rate changes, EPS was impacted favorably by a total of $0.10 this quarter. You might recall that the Q3 tax rate also benefited from the retroactive application of newly enacted rates, so therefore bringing the total impact on EPS to 0 point by product categories and geographies on slide 15. Revenue growth was very strong for year round products and propulsion systems this quarter and new product deliveries were a big driver of the revenue increase. Also for ORVs with our dealer order management system, we saw a shift in dealer demand from Q3 to Q4 and this also increased revenues in the quarter.
Despite a very volatile Russian ruble, our snowmobile sales to our Russian distributor ended better than planned. On the PAC side, portional writing conditions in certain parts of the world hurt overall sales and resulted in annual revenue slightly below guidance. The breakdown by geography was 53% of our sales this quarter from the U. S, 17% from Canada and 30% from international. Normalized net income bridge on slide 16.
Normalized net income increased by $68,000,000 as a result of the following items. Volume and mix, pricing and sales program had a net positive impact of $59,000,000 Production costs and operating expenses were favorable $14,000,000 and these were partly offset by higher income tax expense compared to last year for $21,000,000 and higher depreciation charge for $4,000,000 As I talked earlier, foreign exchange impacted our results favorably this quarter and even more so when comparing to last year where we reported an FX loss, this resulting in a year over year variance of $20,000,000 Moving to balance sheet items. Our cash position ended at $232,000,000 Working capital to finance current assets less current liabilities increased in fiscal 2015 compared to 2014, driven mostly by a higher cash balance. Currency impact on our U. S.
Dollar denominated long term debt resulted in a $145,000,000 increase and we had no drawings on the revolver at year end. CapEx increased $19,000,000 compared to prior year for a total amount of $172,000,000 within our guidance for the year. Free cash flow was very strong in the Q4 and this resulted in $203,000,000 of free cash flow for the year ended January 31. Now Slide 18 for a look at BRP's powersport dealer inventory for North America at the end of January. Dealer inventory was up 15% for the Q4 versus Q4 2014 levels and this is due to higher snowmobile inventory levels compared to an all time low last year and higher PWC inventory for the upcoming season.
We started shipping newly introduced products this quarter ahead of the spring and summer retail season. We consider our inventory levels in the network to be adequate. Now for our guidance for fiscal 2016 on Slide 19. For the year, we are expecting revenue growth of 5% to 9%, driven by a 7% to 11% increase in year round products. Excluding FX, factors that are contributing to the increase in revenues are new model deliveries in all product categories, the expansion of our North America distribution network and our marketing efforts to increase brand and product awareness.
As we are not in the largest segment of the SSV industry, the utility segment, we are not fully benefiting from the mid double digit SSV industry growth expected this season. For our seasonal business, fiscal year 2015 was a great year as we benefited from 2 key factors. 1, an exceptional year for snowmobile deliveries in North America, driven by a strong lineup, a healthy industry and replenishment of dealer inventories and 2, strong PWC results with the success of Spark, especially in the second half of the year as we ramped up capacity and deliveries in anticipation of the upcoming retail season. These two elements were offset in part by lower deliveries of snowmobiles in Russia. Therefore, for next year, we are planning revenue to be flat to up 4% in seasonal products.
We are planning for reduced snowmobile volume in North America and a further volume decline in Russia as our distributor was impacted by weak snowfall and continues to be impacted by the overall economic Propulsion Systems revenues is planned up 7% to 10% to Propulsion Systems revenues is planned up 7% to 10% as we continue to build the momentum of the Evinrude G2. And we are planning a 10% to 15% increase in our revenues from PAC. Normalized EBITDA is forecasted to grow between 6% Our effective tax rate is expected to range from between 27% to 29%, up from 22% last year. The increase in tax rate is driven by the retroactive tax adjustments experienced in fiscal year 2015, but also by forecasted higher mix of profit from countries with a higher tax rate. Depreciation expense is forecasted to increase by $22,000,000 to $135,000,000 as a result of investments in the last few years in product innovation and manufacturing footprint expansion.
Compared to fiscal year 2015, net income is planned to be down 9% to flat. Adjusting for fiscal year 2015 tax rate, which ended at a low 22%, normalized net income growth will be between flat to up 7% when using the same fiscal year 2016 tax rate applied to both years. Finally, this results in in normalized diluted EPS guidance of between $1.50 to 1.65 for the year of between $200,000,000 to $220,000,000 versus last year. CapEx is impacted unfavorably by approximately $15,000,000 due to foreign exchange next year. Turning to slide 20, we are comparing our tax rate of 22% in fiscal 2015 to our fiscal 2014 tax rate of 25% and to historical rates from prior years.
For fiscal 2016 and onward, we expect consolidated income tax rate to increase to the range of 27% to 29%. As mentioned before, this increase is driven by a higher mix of profit from countries with a higher tax rate and to a lesser extent by the $0.05 benefit of the retroactive tax laws enacted in fiscal year 2015. And so therefore, when adjusting fiscal year 2015 EPS to the guided 27% to 29% tax rate, the implied normalized earnings per share growth is flat to up 7%. Turning to slide 21, we are providing you with an assessment of expected profitability distribution throughout next year. As such, based on our forecast, we are planning a slightly better profit distribution between the first half and second half.
However, similar to fiscal 2015, we expect a stronger second half. And finally, exposure to currencies on slide 22. You might recall from the IPO that in our procurement strategy, we attempt to hedge the exposure to the U. S. Dollar and the euro by having a cost base that matches the currency of our revenue.
As a result, for fiscal 2016, we are slightly short the U. S. Dollar, the euro and the Mexican pesos and we have long positions in several export markets, most notably the Scandinavian countries. Based on current exchange rates, the expected impact on fiscal year 2016 is a positive 500 basis points on revenues, but a negative 100 basis points on gross margins. As the pricing of most of our products is benchmarked to the U.
S. In most of the regions we serve, we do view favorably the appreciation of the U. S. Dollar long term. This concludes my remarks and I will turn the call back to Jose.
Thank you, Sebastien. The year clearly turned out more volatile than we anticipated with several externalities to cope with, but we still, of course, kept the focus and deliver on our objectives. We grew sales in all product categories, grew revenue from the international market despite Russia, exceeded our objective for new dealer in North America and launched several exciting products with significant volume potential. Our history suggests that our EBITDA distribution will typically be 40% in the first half and 60% in the second half, but we ended up fiscal year 2015 with a twenty-eighty split. Factors such as the timing of major product introduction, weather conditions or currency exchange rate will bring volatility in our earning distribution.
And fiscal 2015 was a perfect combination of those three factors. I certainly prefer a smoother earning distribution over a back ended loaded profitability. But we experienced those split in our history and in the past 2 years. And most importantly, we deliver on our commitment. So to summarize, our execution resulted in a strong financial performance for fiscal year 2015 and we have good revenue and earning growth expected next year and beyond.
We have a lot of new exciting product in the pipeline, which we will introduce all year long. And I look forward to continue growing BRP into the future. Thank you again for your support. And we'll now take it we'll now take questions.
So Sebastien, we're now ready to take questions. So if we could ask our participants to only ask a few questions at a time and return to the queue so that we get questions from the most people. Thank you.
Thank you, Mr. The first question is from Steve Arthur of RBC Capital Markets. Please go ahead.
Great. Thank you very much. I just want to follow-up on one of your latter points there just in terms of the EBITDA weighting into fiscal 2016. I understand that's a normal pattern, but to the degree of it in fiscal 2016 surprises me a little bit. I would have thought with all the recently launched products contributing to the first half that it might have been closer to that forty-sixty.
Any color on why that is a weighting heavier weighting again in the back half into 2016?
But we saw some change this year, Steve. And we believe next year with our planning that we have right now, we believe that 2016 will be similar to 2015. Again, there will be a lot of new product introduction throughout the year that with the timing of those new product and with the ramp up of watercraft in Mexico for because the full production will be in Mexico starting that fall. The Juarez ramp up the Juarez to ramp up for a new off road segment. Then with all of those elements together, we believe that we're planning our distribution H1, H2 similar 2015.
Is the Juarez 2 contribution in fiscal 2016 a meaningful part of that?
Again, we're going to be starting production late Q4. So it should be more a cost than a contribution because we'll have start up costs. So until we are full ramp up, it will take a few months. So Q4 next year will be more of a cost than a benefit.
Okay. I guess just looking at some of the final question just looking at some of the products specifically in year round that were contributing in quarter. It looks like you had a lot of growth and a lot of strength in Q4. Just wondering about the F3 in particular. It launched in the quarter, some shipments at the quarter end.
We're now, I don't know, 2 thirds of the way into Q1. Any color on how those orders or shipments have been proceeding in the dealer reception so far this quarter?
Like you said, we started shipping the F3 in January in North America, followed by international. So far, we're very early in the season. The dealer in North America had the product for since mid February and international, they're just receiving the product now. But overall, very, very good media and review, very pleased with all the review that was done. We're starting to have some customer feedback.
We've done a survey with a few customers that are owning right now in NIF3. The customer are pleased. Our statistic on the satisfaction versus is very high. Then overall very, very good feeling about the F3 potential, but very early in the season.
Okay. Thank you. I'll pass the line for now.
Thank you.
Thank you. The next question is from Benoit Poirier from Desjardins Capital Markets. Please go ahead.
Yes. Good morning. Just for the my first question is related to the CapEx increase for fiscal 2016. So obviously, once you strip out the FX impact, it's still a good increase from last year level. So I was wondering if
you could
provide more details whether the CapEx increase is related to a specific category or the introduction of more products across several lines? Yes.
I won't necessarily comment on which product line the CapEx is being allocated to. Yes, there's some infrastructure projects next year as well, but we're still heavily investing in product innovation. Again, with the breadth of product lines we have, we'll have a good product pipeline announcement for this year as well. And that's what's going to be driving a lot of the CapEx increase a bit more.
Okay, perfect. Thank you very much. And just for the Russia, could you provide more color on the assumption with respect to the currency because it's been reversing so in a positive territory over the last few months. So just wondering what type of level are you currently forecasting for fiscal 2016?
Then we were a bit surprised Benoit. If you remember about the week after our call in December, the ruble dropped drastically reaching about RUB 85 by euro for a period of about 2 weekend. To be honest, I think nobody could have predict the reaction of Russian consumer, but instead of stopping them to buy the rush to buy luxury goods to buy it at the lower price because they were imported at the lower cost than RUB85 per euro. Then what happened is our dealers in Russia were surprised. They had very, very good retail in December, January and we replenish dealers with product more than what we had anticipated.
Then this is in a nutshell what happened. I don't think nobody could have predict that. This year, we end up at the end with 25% reduction. And for this year, fiscal year 2016, we're planning 50% compared to what we had in fiscal year 2014.
Okay, okay. Perfect. And maybe a third question just in terms of inventory level, you mentioned a very good color about the reason for the increase. Just wondering what could be the implication in terms of the overall margins? Should we expect maybe higher discount, especially given the higher inventory level, but also given the upcoming introduction of new products?
So just wondering whether it should translate into higher discounts for fiscal 2016?
Actually Benoit in terms of inventory level, we are very comfortable with the inventory level today that we have. 1 of the big drivers of the increase year over year is snowmobile inventory levels in North America. Despite the bad snow conditions out west, the inventory levels are comparable to our historical inventory levels that we've had in North America. So we're back to normal inventory levels for snowmobile. And the other element which drove a bit more inventory is we've delivered Spark in anticipation of the retail season.
And so those are the 2 big drivers. So we're not our inventory levels for ATVs when you exclude the new models and all that the standard models are lower for SSV as well. So there's no level of income and a need to push more sales program in the network in the near future in order to liquidate that inventory. Okay, perfect. Very good color.
Thank you.
Thank you.
Thank you. The next question is from Garik Johnson from BMO Capital Markets. Please go ahead.
Hey, good morning. I just wanted to follow-up on Benoit's question about channel inventory. Wondering if we could look more closely at that and if we could get a comparison of prior year channel inventory, how it looks if you look at 2014 off road vehicle models this year versus 2013 and earlier last year and then 2015 snowmobiles versus 2014 last year?
Thank you.
And, Gerrick, the inventory in North America is 15% higher than last year. But let's see if we try to give you some color, a third of the 15% is for off road vehicle and in there, there is Outlander L entering in the mid CC and Spydera 3 and 2 third is on seasonal products split about half and half, one half is snowmobile, again normal inventory for a normal winter, higher than last year, which was exceptional, but normal. And the other half is watercraft, mainly the addition of the Spark.
Okay. Okay. Moving on. Arctic Cat was pretty aggressive with snowmobile promotions in season and now with off road vehicles. Do you think this has had any impact on your business?
We if you remember, we had the highest spring break sales in model year 2015 ever. And some of our competitors started to discount their units in December and we didn't follow. We did follow mid January out west because of the snow situation, but we never had really program in the east where snow condition was good. For the off road vehicle, so far we don't believe that this is affecting our retail But
I'm wondering, are But I'm wondering, are you finding deeper penetration of your line with existing dealers, meaning are those dealers taking more of your product segments?
Well, the in terms of dealer coverage, as we saw in the script or in the presentation, we had a good increase in overall penetration of the year round products, let's say, line or take rate from existing dealers. So yes, that's one of the big drivers as well of our growth. We're seeing a 10% increase in the Spider and SSV network coverage compared to a year ago. So that's not only driven by the 76 that we've signed, but also by existing dealers taking our lines. And when you look at the existing 76 dealers that we signed this year, 95% of them actually took the ORV line.
So we're extremely happy with the penetration that we're
getting. Great. Thank you, Sebastien.
Thank you. The next question is from Anthony Zajka from Scotiabank. Please go ahead.
Yes. Good morning. Jose, could you give us a bit more color in terms of promotional activity for the first quarter and your expectations for the Q2? And the other part is, when you look at your dealers, you've increased the number to 76. Could you give us a bit of a geographic breakdown?
And have some of these dealerships had some challenges with reference to lower oil prices? We've seen consumer confidence go down in Alberta. I'm sure it's the case in the Western U. S. But have you seen any evidence of this?
Okay. Let's start with the promotion, what's going on with the promotion. We are at the point in the season, most of the summer product will end their season end of June, July. And you could see at this time of the year some OEM being aggressive. But so far, I would say, except maybe for once, so far, I would say the promotion activity, I would consider it normal.
And typically, you will see aggressive promotion coming out more in April May and the back end of the season depending of an OEM situation and its inventory. Then so far I would quote the promotional activity like normal. In term of the dealer, just to come back on the dealer, we're very happy because the focus of our new dealers out of the 76, about half were in the South and Southwest, which is only 13 states in United States. And we're happy with the distribution that we took. Maybe there is one thing that I would like to add.
We've done quite we have had a dealer in the last 2 years now, but the ramp up is a bit longer than what we had thought. If a dealer take a line in an existing store, it can be up and running within 6 months. But if a dealer extend his building or build a new building, it can take 18 months. And I would guess our average is about a year. Then between the time that you sign a dealer, in average, it takes 12 months that the dealer is up and running with product in the showroom and the staff is trained and the sales is happening.
Okay. And with reference to lower oil prices, clearly impacting Alberta, most probably also Western U. S. So have your dealers seen any evidence of that?
Yes. Sorry, I forgot that last question. Yes, we see mainly Adapta slowing down. All the West and Canada are slow down. It's reflected into the snowmobile order that we receive.
And for them, it's a double impact. They had the weak snow season. And on top of it, the economy in out west is so so. Then but all of this right now is factoring in our guidance for the snowmobile because we have preliminary order on our hand. And also because the adjusting now their order on a monthly basis on all the off road vehicle, it's also reflected in the guidance.
Okay. Well, thank you very much.
Thank you. The next question is from Robin Farley of UBS. Please go ahead.
Hi. Thank you for taking the questions. Actually, RPNF for Robin. So in terms of guidance of 7% to 11% shipment growth in the year round products, could you perhaps break down side by side expectations in that segment? Also any broad commentary you could give on the retail environment since
and I'll have Jose give you some color on the retail for SSV. As I've mentioned in my remarks, the SSV industry is growing at a very good rate. However, when you look at our product portfolio in the SSV segment, we're not covering all of the segments. And one of the segments which we're not covering is the utility segment, which is one of the largest segment about 60% of the overall industry and also one of the fastest growing segments in the industry. So our projections for a year on product growth is impacted by the fact that we're not necessarily in those high growth segments in the SSV industry.
And therefore, our forecast deliveries is lower than the forecasted industry growth for the segment. And I'll have Jose cover the retail performance. Maybe also to add to
Sebastian. In Russia, obviously, the biggest product that we're selling there is snowmobile, but we sell quite a lot of ETV and side by side. In Scandinavia, where the economy is also soft, we're selling quite a lot of ATV and those two regions are definitely slowing down versus what we had planned last year and slowing down the growth in the year on product. On the promotional side, I would say at this point, the situation I would consider it normal worldwide. We have good momentum with the mid CC ATV category.
We're doing well in U. S, a bit slower than planned in Canada, because mainly what's happening out west, but better at international. Then our momentum in the mid CC category is, I would say, globally, worldwide on plan. On the side by side, like Sebastien explained, we're playing right now with the Commander and the Maverick families only in 40% of the segment. And it's definitely that something we're trying to resolve in the near future.
On the Spider front, we're planning this year a good retail growth with the addition of the F3. But if you remember, we wanted to reduce our we finished model year 14 with a bit too much inventory at the dealer level. And we wanted our plan is to slightly reduce the inventory in the network at the end of the year. Then we're planning a retail a bit higher than the wholesales during fiscal year 2016 and all of this adds up to the 7% to 11%.
Thank you very much.
Thank you.
Thank you. The next question is from Derek Dley from Canaccord Genuity. Please go ahead.
Yes. Hi, guys. Just looking at the international market, have you been able to replace some of the sales that had gone to Russia into other markets? If you remember, the Russia situation started in, I would say, in fall, we have been able to ship some unit in Canada, mainly in Canada and some in U. S, but not too many out of the order because the Scandinavia market is different.
Scandinavia and Russia market are different sled than what we use in Canada. Then everything we could, we have bring them in North America, but most of the inventory has stayed there. Okay. Thanks. And is Russia still your biggest international market outside of well outside of Canada and the U.
S? Forecasted 16%, again, we're looking at a 50% decline from fiscal year 2014. So we'll have other big markets such as Australia, Brazil that will be fairly close to what we're seeing in terms of numbers. And let's say, we'll call it Western Europe, which is not a country, but a region which will be material as well.
Okay, great. Thank you very much.
Thank you. The next question is from Cameron Doerksen of National Bank Financial. Please go ahead.
Yes, thanks. I guess a question on the capital allocation strategy you've announced in NCIB. I'm just wondering if you can talk about the thought process behind that. Was any consideration given to a potential dividend? And how do you think about the leverage?
Do you feel like you're comfortable there? Or is there, I guess, the next few years a plan to reduce that?
Good morning. I mean capital allocation is a recurring topic that we have at the Board. When we look at our balance sheet and when we look at the overall powersport and we'll call it big ticket item discretionary sector, leverage is 0 or minimal. So, as part of those discussions we have with the Board, we look at well what are the potential returns that we can generate through investing capital. We have a lot of organic growth projects internally.
We look at our debt situation. I'll just remind you that our debt conditions are very favorable maturing only in fiscal year 2019 with covenant light at a low cost of 4% all in cost. So when you after tax that, it's only 3%. So paying down debt today is not necessarily something that
is a high
priority. However, when we looked at where our stock price is trading and the potential return it could bring to shareholders by buying back shares. We believe that having the option to buy back shares this year could be a good alternative to give good returns to shareholders. And that doesn't mean that we're looking away from a dividend. However, I think we need to strengthen our balance sheet and deliver the business before we start thinking about a dividend in the near future.
Okay.
Maybe just a second question on margins. I mean, the guidance sort of implies roughly 12% EBITDA margins, which would be kind of flattish. And obviously, you got some headwinds here with foreign exchange. You're ramping up some new facilities in Mexico. So there's some headwinds.
But can you talk about, if we look beyond fiscal 2015, what the margin profile looks like? I mean, how do you narrow the gap between yourselves and what some of your peers have, which is higher margins?
Yes. For sure, FX has been impacting us. I mean, we've lost 200 basis points if you compare 2015 to 2014 and 2016 to 15. So that's a big hit. And also last year and this year, we are transitioning to new manufacturing facilities.
So all the cost improvements that we're building into our product design is being offset by some of these initiatives. So we are extremely focused on improving margins over the long term and such initiatives as the transfer of PWC to Mexico will bring improved margins, but that will be in fiscal year 2017. And that's again part of our ongoing strategy. Yes, we want to focus on increasing top line and that's going to be a big driver as well of improving margins because your asset utilization is much better. But also improving the way we build products and the cost of our products will also be an important driver of that margin growth.
Okay, perfect. Maybe just last quick one, just on the pack up 10% to 15% in the guidance. That seems pretty strong. Is there any specific driver of
that? Well, we have an aggressive pack strategy or a strong pack strategy where we want to increase the dollar per unit of pack sales. We've had successes in the past as you've seen our results in our pack sales growth. And that's going to be continued next year as well. We have a dedicated pack sales team that are focused on increasing our pack penetration rate at dealers and they have key metrics that we follow to make sure that we achieve those targets.
And so these are the drivers that are as part of the retail and the top line growing. We also have some very effective go to market strategies that will bring that top line growth
as well.
Okay. Thanks very much.
Thank you. The next question is from Mark Petrie from CIBC. Please go ahead.
Hey, good morning. Just a couple of quick follow ups actually. So on the ramp up of the PWCs down in Carrotaro, so that's $20,000,000 to $25,000,000 And is that in fiscal 2017 where those savings will be realized?
Yes. That's going to be in fiscal 2017, Mark, that we'll be seeing those savings come in.
Okay. And then in terms of the actual revenues coming out of or resulting from production out of Juarez II, will we actually see any in Q4 of fiscal 2016? Or is that a ramp up in fiscal 2017 and fiscal 2018?
You will see a bit in Q4 of this year and the ramp up is going to be happening in 2017. But yes, we will be delivering units finished goods out of that facility this year.
Okay. And then just in terms of FX, I mean, the positioning sort of or some of the commentary that we've heard from you generally speaking is net hedge over the course of a year. But it does seem that it's going to be having again a pretty significant impact in terms of fiscal 2016. Is a lot of that timing and just sort of lapping some of the moves? Or how should we think about the FX positioning from a natural hedge perspective going forward?
Well, we'll continue we believe that in the long term that's the best strategy because you could do again some forward contracts, but you're always 12 months, let's say, behind the increase, Having costs and offset the revenue in the various currencies for us is the best strategy, despite the fact that it hurts the margin. But on the economic side, on the cash side, it produces the best results and protects us the most. And so that's a strategy we've had in the past, a strategy we're going to continue having. We're going to refine it for sure. We're going to be looking at certain exposures how to better manage it because as you know certain countries where we're export, we have very little cost but a lot of revenue.
Can we do a better job of managing that exposure? We'll look at it. But when you look at the 2 big currencies for us is the USD where we have a lot of revenue and a lot of costs and the euro where we do have some good revenues, but also some costs because of our manufacturing plants in Europe. And so for us that offsetting strategy is the best strategy despite the fact that okay if the U. S.
Dollar continues going up, it's going to be impacting margins negatively. But as I said, if the U. S. Dollar continues going up, we as the U. S.
Is a benchmark for pricing around the world, we feel it's good for the overall business.
Okay. And that was sort of actually my just follow-up. In terms of the Canadian dollar, obviously, you guys have a reasonable amount of your costs in Canadian dollars. How do you think about pricing within North America?
The U. S. Market is still the biggest market in the world for recreational product and it's somewhat the reference country for pricing. And we need always to manage cross boarding shopping between country and this is true between U. S.
And Canada, but it's also true in Europe where countries that they don't use the euro currency. Then typically you keep a 10% gap between your Canadian pricing and your U. S. Pricing adjusted for the currency. So far, we saw some of our competitor increasing their pricing in Canada.
That's an opportunity for us. But obviously, this is something that you see more long term and it will take a few years if the U. S. Dollar continued to grow to gain in value versus the Canadian. You will see pricing in Canada going up, but it's something that is not happening overnight.
It could take a year or 2, 3 years to follow the currency or situation.
Okay. Thanks very much. Best of luck.
Thank you.
Thank you. The next question is from Craig Kennison from Robert W. Baird. Please go ahead.
Good morning. Thank you for taking my question. Most have been addressed, but I'll follow-up on the share repurchase plan. Does your guidance include any share repurchase activity? Or would that provide upside?
Thank you.
The guidance does not include any share purchase activity. So it's based on a constant share count as where we ended in fiscal year 2015, so 118,000,000 shares. So today, it's on a constant share basis. Thank you.
Thank you. The next question is from Martin Landry from GMP Securities. Please go ahead.
Yes, good morning. So just going back to your Q4 results, they've come in higher than your revised guidance that you gave in mid December. It would suggest you've had a strong January. Can you talk a little bit about what came in better than anticipated? Was it related to your change in the dealer patterns?
Good morning, Martin. Yes, when you look at the results, especially on the EPS side, we did come very strong and on the EBITDA as well. However, there's 2 things which impacted our results, which are I'll refer as externalities. The first one is the FX from the revaluation of the balance sheet, the working capital elements on the balance sheet. That resulted in a gain of $12,000,000 So when you strip that out and remove that, that's about $0.07 on the EPS and about $12,000,000 on the EBITDA.
And also the tax rate, we had announced we had reduced our guidance on the tax rate in when we announced the results in Q3 coming from retroactive changes in tax laws that happened in Q3, but new changes also happened in Q4, which impacted our EPS for an additional $0.03 So when you strip out these elements, dollars 0.10 on the EPS and about $12,000,000 on the EBITDA, we're kind of within the mid range of the guidance. And therefore, nothing extraordinary happened in the quarter, which made us miss or come in higher or lower than expected. As Jose mentioned, Russia was a bit stronger than what we had expected. However, that was offset by lower sales of parts and accessories.
Okay. And just to be clear, the $0.10 you're talking about, is that's not excluded from the adjusted $0.98 you reported?
No, it's not excluded.
Okay. And then lastly, on the side by side, you do mention that you're not in the utility segment. Any chance to give us some color on how you're faring in your addressable market, meaning how are your retail sales doing versus industry and in the markets you're targeting?
Yes. The calendar play into what we call the recu to vehicle you can use for recreational or utility activity with bucket seat. This segment is slowing down slightly and we are maintaining our market share. On the sport category, this segment is growing. And so far we're maintaining our market share.
The Maverick, XDS and XDS Super Bowl were shipped a bit late to be honest. I think our team have done an incredible job to develop those high performance vehicles. But in an ideal world, we'll have shipped them maybe 2 months before. They arrive in large quantity in January. And far we're hearing good things.
And basically, we're maintaining our share in those two segments that we are in, we believe the Mavriq, XDS and XDS Auto could get some momentum. But the disproportion of the utility versus the rest is really causing the market share loss when you look at the overall industry.
Okay. Thank you very much.
Yes, sir. Thank you. The next question is from Tim Conder of Wells Fargo Securities. Please go ahead.
Good morning. This is actually Mark Terentian for Tim. Just as a quick follow-up to the FX and pricing questions. So are you actually using the Canadian dollar at all to your advantage to gain share in the U. S?
And then could you also provide any additional color on hedging for 2016? How much are you hedged and at what level?
Yes. In terms of leveraging the Canadian dollar for U. S. Pricing, no, we look at it as 2 very distinct markets and the demand for the markets are different and consumers are slightly different. And therefore, we're not taking the let's say the potential lower cost from the Canadian dollar when you convert it to U.
S. To reduce pricing and gain share. We are respecting the pricing and the market conditions that are there. As I've said, again, when we look at our overall FX position, we look at it globally within the company. And so yes, we are benefiting from a strong U.
S. Dollar on the top line. But we have a good amount of cost in the U. S. Dollar, it doesn't mean that the margins are increasing as there's an offset that's occurring there.
And in terms of hedging strategy, today the currency that we are actively hedging with forward contracts are the AUD, the SEC and the NOC. We do have a policy that allows us to hedge not more than 60% of the next 12 months and at least 25% for the next 6 months. So we are within these guidelines and say we're probably up 30% for the sec and probably same range for the NUC and the AUD also probably in the same range in terms of overall hedging.
Okay, great. And then do you have any updates on the pending regulatory issues with the CPSC?
We continue all the OEM continue to collaborate together through the Rovo Association and we are in discussion with CPSC. Discussion are going on nothing to update at this point, But we are confident we're following that closely obviously and we're confident that we can meet any new regulation that it can come with.
Okay, great. Thank you.
Thank you.
Thank you. The next question is from Benoit Poirier of Desjardins Capital Markets. Please go ahead.
Yes. Just to come back on the Spark, if we look at the industry was kind of low single digit early in the season, while the SEDU was overall flat. I was kind of expecting you to gain market share just because of the spark. So any color on those numbers so far?
Right now, the don't forget that we started to deliver the Spark in September 2013. And when we introduced the vehicle, we already had produced units and we shipped to the dealer very quickly and we had a very good response from day 1 on the Spark. But what happened last year Benoit, we because of the demand was bigger than what we had planned, we extended production from the end of March till the end of June. That gave us the additional volume. This year, because we're planning the industry to be at least what we had last year, we started to ship a bit earlier in this year in fiscal year 2015 to finish to plan finished production in March to give us the opportunity again to increase production if the retail is there.
But at this point, it's a very low number. We probably have 5 percent of the retail of the season done. And right now, the industry is flat versus last year.
I see. Okay. Okay. Very good color. And is the mix between traditional and Spark mostly in line with the initial expectation Jose?
So far, yes. Okay. Very good. And last question, just with respect to your guidance, does it assume the new products introduction that we might see this year?
Yes.
There are no further questions at this time. I'd like to turn it back over to Mr. Bussey.
Great. Thank you very much, Sebastien. So I want to thank all of our participants for today's call. Wish you a very good day and we'll talk to you when we report Q1 results in June. Thank you very much and you all have a very good day.
Thank you. The conference call has now ended. Please disconnect your lines at this time. We thank you for your participation.