BRP Inc 6-K, filed Nov 30, 2022
BRP Inc. (DOO)
About this 6-K
BRP Inc filed this 6-K on November 30, 2022.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16
OF THE SECURITIES EXCHANGE ACT OF 1934
For the month of November, 2022
Commission File Number: 001-38648
BRP INC.
(Translation of registrant’s name into English)
726 Saint-Joseph Street
Valcourt, Quebec, Canada
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F ☐ Form 40-F ☒
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
EXHIBIT INDEX
Exhibits 99.1 and 99.2 to this report of a Foreign Private Issuer on Form 6-K are deemed filed for all purposes under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BRP Inc. | ||
| By: | /s/ Sébastien Martel | |
| Name: | Sébastien Martel | |
| Title: | Chief Financial Officer | |
Date: November 30, 2022
Exhibit 99.1
Unaudited Condensed Consolidated Interim Financial Statements
BRP Inc.
For the three- and nine-month periods ended October 31, 2022 and 2021
BRP Inc.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF NET INCOME
[Unaudited]
[in millions of Canadian dollars, except per share data]
| Three-month periods ended | Nine-month periods ended | |||||||||||||||||||||||||||
| Notes | October 31, 2022 |
October 31, 2021 |
October 31, 2022 |
October 31, 2021 |
||||||||||||||||||||||||
| Revenues |
16 | $2,709.3 | $1,588.0 | $6,957.1 | $5,300.4 | |||||||||||||||||||||||
| Cost of sales |
2,054.6 | 1,177.4 | 5,245.3 | 3,777.7 | ||||||||||||||||||||||||
| Gross profit |
654.7 | 410.6 | 1,711.8 | 1,522.7 | ||||||||||||||||||||||||
| Operating expenses |
||||||||||||||||||||||||||||
| Selling and marketing |
113.3 | 97.8 | 316.0 | 293.3 | ||||||||||||||||||||||||
| Research and development |
80.6 | 70.6 | 246.7 | 204.7 | ||||||||||||||||||||||||
| General and administrative |
74.9 | 65.2 | 219.3 | 187.4 | ||||||||||||||||||||||||
| Other operating expenses (income) |
17 | 1.1 | (8.5 | ) | (0.4 | ) | (3.1) | |||||||||||||||||||||
| Total operating expenses |
269.9 | 225.1 | 781.6 | 682.3 | ||||||||||||||||||||||||
| Operating income |
384.8 | 185.5 | 930.2 | 840.4 | ||||||||||||||||||||||||
| Financing costs |
18 | 33.1 | 16.5 | 77.4 | 114.9 | |||||||||||||||||||||||
| Financing income |
18 | (0.3 | ) | (0.7 | ) | (4.6 | ) | (3.5 | ) | |||||||||||||||||||
| Foreign exchange (gain) loss on long-term debt |
132.6 | (9.9 | ) | 148.6 | (58.9 | ) | ||||||||||||||||||||||
| Income before income taxes |
219.4 | 179.6 | 708.8 | 787.9 | ||||||||||||||||||||||||
| Income tax expense |
19 | 77.8 | 51.9 | 208.5 | 202.9 | |||||||||||||||||||||||
| Net income |
$141.6 | $127.7 | $500.3 | $585.0 | ||||||||||||||||||||||||
| Attributable to shareholders |
$141.2 | $127.6 | $498.6 | $584.5 | ||||||||||||||||||||||||
| Attributable to non-controlling interest |
$0.4 | $0.1 | $1.7 | $0.5 | ||||||||||||||||||||||||
| Basic earnings per share |
15 | $1.79 | $1.57 | $6.27 | $7.02 | |||||||||||||||||||||||
| Diluted earnings per share |
15 | $1.76 | $1.53 | $6.15 | $6.81 | |||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
2
BRP Inc.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME
[Unaudited]
[in millions of Canadian dollars]
| Three-month periods ended | Nine-month periods ended | |||||||||||||||||||
| October 31, 2022 |
October 31, 2021 |
October 31, 2022 |
October 31, 2021 |
|||||||||||||||||
| Net income |
$141.6 | $127.7 | $500.3 | $585.0 | ||||||||||||||||
| Other comprehensive income |
||||||||||||||||||||
| Items that will be reclassified subsequently to net income |
||||||||||||||||||||
| Net changes in fair value of derivatives designated as cash flow hedges |
(20.1) | 8.3 | 15.0 | 14.6 | ||||||||||||||||
| Net changes in unrealized loss on translation of foreign operations |
(0.3) | (8.5) | (30.3) | (28.1) | ||||||||||||||||
| Income tax (expense) recovery |
5.6 | (2.4) | (3.9) | (4.0) | ||||||||||||||||
| (14.8) | (2.6) | (19.2) | (17.5) | |||||||||||||||||
| Items that will not be reclassified subsequently to net income |
||||||||||||||||||||
| Actuarial gains on defined benefit pension plans |
56.3 | 26.2 | 128.1 | 59.1 | ||||||||||||||||
| Loss on fair value of restricted investments |
(0.7) | (0.2) | (1.7) | — | ||||||||||||||||
| Income tax expense |
(14.2) | (6.9) | (32.0) | (15.6) | ||||||||||||||||
| 41.4 | 19.1 | 94.4 | 43.5 | |||||||||||||||||
| Total other comprehensive income |
26.6 | 16.5 | 75.2 | 26.0 | ||||||||||||||||
| Total comprehensive income |
$168.2 | $144.2 | $575.5 | $611.0 | ||||||||||||||||
| Attributable to shareholders |
$168.2 | $144.1 | $574.6 | $610.6 | ||||||||||||||||
| Attributable to non-controlling interest |
$— | $0.1 | $0.9 | $0.4 | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
3
BRP Inc.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
[Unaudited]
[in millions of Canadian dollars]
As at
| Notes |
October 31, 2022 |
January 31, 2022 | ||||||||||
| Cash and cash equivalents |
$59.9 | $265.8 | ||||||||||
| Trade and other receivables |
523.7 | 465.7 | ||||||||||
| Income taxes and investment tax credits receivable |
31.6 | 31.6 | ||||||||||
| Other financial assets |
4 | 85.5 | 73.6 | |||||||||
| Inventories |
5 | 2,474.8 | 1,691.3 | |||||||||
| Other current assets |
6 | 72.4 | 140.1 | |||||||||
| Total current assets |
3,247.9 | 2,668.1 | ||||||||||
| Investment tax credits receivable |
28.2 | 24.4 | ||||||||||
| Other financial assets |
4 | 135.3 | 53.2 | |||||||||
| Property, plant and equipment |
1,614.0 | 1,441.9 | ||||||||||
| Intangible assets |
7 | 735.4 | 494.9 | |||||||||
| Right-of-use assets |
144.5 | 132.7 | ||||||||||
| Deferred income taxes |
241.8 | 212.8 | ||||||||||
| Other non-current assets |
6 | 3.9 | 2.9 | |||||||||
| Total non-current assets |
2,903.1 | 2,362.8 | ||||||||||
| Total assets |
$6,151.0 | $5,030.9 | ||||||||||
| Revolving credit facilities and bank overdraft |
8 | $363.1 | $— | |||||||||
| Trade payables and accruals |
1,858.4 | 1,622.9 | ||||||||||
| Provisions |
9 | 477.2 | 328.1 | |||||||||
| Other financial liabilities |
10 | 135.5 | 152.3 | |||||||||
| Income tax payable |
63.9 | 135.7 | ||||||||||
| Deferred revenues |
127.3 | 247.9 | ||||||||||
| Current portion of long-term debt |
11 | 51.0 | 103.1 | |||||||||
| Current portion of lease liabilities |
36.0 | 29.4 | ||||||||||
| Total current liabilities |
3,112.4 | 2,619.4 | ||||||||||
| Long-term debt |
11 | 2,281.0 | 1,937.4 | |||||||||
| Lease liabilities |
124.6 | 117.5 | ||||||||||
| Provisions |
9 | 123.4 | 86.2 | |||||||||
| Other financial liabilities |
10 | 64.1 | 34.0 | |||||||||
| Deferred revenues |
122.0 | 107.3 | ||||||||||
| Employee future benefit liabilities |
84.8 | 220.2 | ||||||||||
| Deferred income taxes |
54.3 | 22.4 | ||||||||||
| Other non-current liabilities |
14.6 | 19.3 | ||||||||||
| Total non-current liabilities |
2,868.8 | 2,544.3 | ||||||||||
| Total liabilities |
5,981.2 | 5,163.7 | ||||||||||
| Equity (deficit) |
169.8 | (132.8 | ) | |||||||||
| Total liabilities and equity (deficit) |
$6,151.0 | $5,030.9 | ||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
4
BRP Inc.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY
[Unaudited]
[in millions of Canadian dollars]
For the nine-month period ended October 31, 2022
| Attributed to shareholders | ||||||||||||||||||||||||||||||||
| |
Capital Stock (Note 12) |
|
|
Contributed surplus |
|
|
Retained losses |
|
|
Translation of foreign operations |
|
|
Cash- flow hedges |
Total | |
Non- controlling |
|
|
Total equity (deficit) |
| ||||||||||||
| Balance as at January 31, 2022 |
$260.6 | $(3.2) | $(404.3) | $(2.9) | $14.2 | $(135.6) | $2.8 | $(132.8) | ||||||||||||||||||||||||
| Net income |
— | — | 498.6 | — | — | 498.6 | 1.7 | 500.3 | ||||||||||||||||||||||||
| Other comprehensive income (loss) |
— | — | 94.4 | (29.5) | 11.1 | 76.0 | (0.8) | 75.2 | ||||||||||||||||||||||||
| Total comprehensive income (loss) |
— | — | 593.0 | (29.5) | 11.1 | 574.6 | 0.9 | 575.5 | ||||||||||||||||||||||||
| Dividends |
— | — | (38.2) | — | — | (38.2) | — | (38.2) | ||||||||||||||||||||||||
| Issuance of subordinate shares |
7.3 | (2.1) | — | — | — | 5.2 | — | 5.2 | ||||||||||||||||||||||||
| Repurchase of subordinate shares |
(20.2) | 47.2 | (279.8) | — | — | (252.8) | — | (252.8) | ||||||||||||||||||||||||
| Stock-based compensation |
— | 12.9 | [a] | — | — | — | 12.9 | — | 12.9 | |||||||||||||||||||||||
| Non-controlling interest arising on business combination |
— | — | — | — | — | — | 20.4 | 20.4 | ||||||||||||||||||||||||
| Obligation to repurchase a non-controlling interest |
— | — | — | — | — | — | (20.4) | (20.4) | ||||||||||||||||||||||||
| Balance as at October 31, 2022 |
$247.7 | $54.8 | $(129.3) | $(32.4) | $25.3 | $166.1 | $3.7 | $169.8 | ||||||||||||||||||||||||
[a] Includes $1.6 million of income tax expense.
For the nine-month period ended October 31, 2021
| Attributed to shareholders | ||||||||||||||||||||||||||||||||
| |
Capital Stock |
|
|
Contributed surplus |
|
|
Retained losses |
|
|
Translation of foreign operations |
|
|
Cash- flow hedges |
Total | |
Non- controlling |
|
|
Total deficit |
| ||||||||||||
| Balance as at January 31, 2021 |
$210.4 | $(154.0) | $(575.9) | $35.5 | $5.3 | $(478.7) | $3.8 | $(474.9) | ||||||||||||||||||||||||
| Net income |
— | — | 584.5 | — | — | 584.5 | 0.5 | 585.0 | ||||||||||||||||||||||||
| Other comprehensive income (loss) |
— | — | 43.5 | (28.0) | 10.6 | 26.1 | (0.1 | ) | 26.0 | |||||||||||||||||||||||
| Total comprehensive income (loss) |
— | — | 628.0 | (28.0) | 10.6 | 610.6 | 0.4 | 611.0 | ||||||||||||||||||||||||
| Dividends |
— | — | (32.4) | — | — | (32.4) | — | (32.4) | ||||||||||||||||||||||||
| Issuance of subordinate shares |
84.8 | (20.7) | — | — | — | 64.1 | — | 64.1 | ||||||||||||||||||||||||
| Repurchase of subordinate shares |
(32.7) | 200.0 | (575.4) | — | — | (408.1) | — | (408.1) | ||||||||||||||||||||||||
| Stock-based compensation |
— | 14.9 | [a] | — | — | — | 14.9 | — | 14.9 | |||||||||||||||||||||||
| Other |
— | — | — | — | — | — | (1.4) | (1.4) | ||||||||||||||||||||||||
| Balance as at October 31, 2021 |
$262.5 | $40.2 | $(555.7) | $7.5 | $15.9 | $(229.6) | $2.8 | $(226.8) | ||||||||||||||||||||||||
[a] Includes $1.5 million of income tax recovery.
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
5
BRP Inc.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
[Unaudited]
[in millions of Canadian dollars]
| Nine-month periods ended | ||||||||||||||
| Notes | October 31, 2022 |
October 31, 2021 |
||||||||||||
| OPERATING ACTIVITIES |
||||||||||||||
| Net income |
$500.3 | $585.0 | ||||||||||||
| Non-cash and non-operating items: |
||||||||||||||
| Depreciation expense |
220.4 | 199.1 | ||||||||||||
| Income tax expense |
19 | 208.5 | 202.9 | |||||||||||
| Foreign exchange (gain) loss on long-term debt |
148.6 | (58.9) | ||||||||||||
| Interest expense and transaction costs |
18 | 71.5 | 87.7 | |||||||||||
| Other |
1.3 | 39.1 | ||||||||||||
| Cash flows generated from operations before changes in working capital |
1,150.6 | 1,054.9 | ||||||||||||
| Changes in working capital: |
||||||||||||||
| Increase in trade and other receivables |
(58.9) | (180.4) | ||||||||||||
| Increase in inventories |
(753.6) | (703.1) | ||||||||||||
| (Increase) decrease in other assets |
32.4 | (47.4) | ||||||||||||
| Increase in trade payables and accruals |
231.1 | 153.8 | ||||||||||||
| Increase (decrease) in other financial liabilities |
(26.1) | 7.3 | ||||||||||||
| Increase (decrease) in provisions |
178.5 | (83.3) | ||||||||||||
| Decrease in other liabilities |
(131.7) | (1.3) | ||||||||||||
| Cash flows generated from operations |
622.3 | 200.5 | ||||||||||||
| Income taxes paid, net of refunds |
(280.0) | (139.3) | ||||||||||||
| Net cash flows generated from operating activities |
342.3 | 61.2 | ||||||||||||
| INVESTING ACTIVITIES |
||||||||||||||
| Additions to property, plant and equipment |
(353.1) | (319.9) | ||||||||||||
| Additions to intangible assets |
7 | (43.4) | (44.8) | |||||||||||
| Business combinations, net of acquired cash |
3 | (208.8) | — | |||||||||||
| Other |
5.8 | 5.9 | ||||||||||||
| Net cash flows used in investing activities |
(599.5) | (358.8) | ||||||||||||
| FINANCING ACTIVITIES |
||||||||||||||
| Increase in revolving credit facilities and bank overdraft |
365.1 | 58.5 | ||||||||||||
| Issuance of long-term debt |
11 | 244.5 | 410.0 | |||||||||||
| Long-term debt amendment fees |
11 | (1.9) | (20.0) | |||||||||||
| Repayment of long-term debt |
11 | (94.8) | (774.1) | |||||||||||
| Repayment of lease liabilities |
(25.6) | (27.0) | ||||||||||||
| Interest paid |
(63.1) | (40.7) | ||||||||||||
| Issuance of subordinate voting shares |
5.2 | 64.1 | ||||||||||||
| Repurchase of subordinate voting shares |
12 | (305.5) | (638.2) | |||||||||||
| Dividends paid |
(38.2) | (32.4) | ||||||||||||
| Other |
(5.1) | (4.4) | ||||||||||||
| Net cash flows generated from (used in) financing activities |
80.6 | (1,004.2) | ||||||||||||
| Effect of exchange rate changes on cash and cash equivalents |
(29.3) | 10.4 | ||||||||||||
| Net decrease in cash and cash equivalents |
(205.9) | (1,291.4) | ||||||||||||
| Cash and cash equivalents at the beginning of period |
265.8 | 1,325.7 | ||||||||||||
| Cash and cash equivalents at the end of period |
$59.9 | $34.3 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
6
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2022 and 2021
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
| 1. | NATURE OF OPERATIONS |
BRP Inc. (“BRP”) is incorporated under the laws of Canada. BRP’s multiple voting shares are owned by Beaudier Inc. and 4338618 Canada Inc. (collectively, “Beaudier Group”), Bain Capital Integral Investors II, L.P. (“Bain Capital”) and La Caisse de dépôt et placement du Québec (“CDPQ”), (collectively, the “Principal Shareholders”). BRP’s subordinate voting shares are listed in Canada on the Toronto Stock Exchange under the symbol DOO and in the United States on the Nasdaq Global Select Market under the symbol DOOO.
BRP and its subsidiaries (the “Company”) design, develop, manufacture and sell powersports vehicles and marine products. The Company’s Powersports segment comprises “Year-Round Products” which consists of all-terrain vehicles, side-by-side vehicles and three-wheeled vehicles; “Seasonal Products” which consists of snowmobiles, personal watercraft and pontoons; and “Powersports PA&A and OEM Engines” which consists of parts, accessories and apparel (“PA&A”), engines for karts and recreational aircraft and other services. Additionally, the Company’s “Marine” segment consists of boats, pontoons, jet boat and outboard engines and related PA&A and other services.
The Company’s products are sold mainly through a network of independent dealers, independent distributors and to original equipment manufacturers (the “Customers”). The Company distributes its products worldwide and manufactures them in Mexico, Canada, Austria, the United States, Finland, Australia and Germany.
The Company’s headquarters is located at 726 Saint-Joseph Street, Valcourt, Québec, J0E 2L0.
| 2. | BASIS OF PRESENTATION |
These unaudited condensed consolidated interim financial statements for the three- and nine-month periods ended October 31, 2022 and 2021 have been prepared using accounting policies consistent with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) and in accordance with IAS 34 “Interim Financial Reporting”. These unaudited condensed consolidated interim financial statements for the three- and nine-month periods ended October 31, 2022 and 2021 follow the same accounting policies as the audited consolidated financial statements for the year ended January 31, 2022 and, as such, should be read in conjunction with them.
The preparation of these unaudited condensed consolidated interim financial statements in accordance with the Company’s accounting policies requires management to make estimates and judgments that can affect the reported amounts of assets and liabilities, related amounts of revenues and expenses, other comprehensive income and disclosures made. The Company’s best estimates are based on the information, facts and circumstances available at the time estimates are made. Management uses historical experience and information, general economic conditions and trends, as well as assumptions regarding probable future outcomes as the basis for determining estimates. Actual results could differ from the estimates used and such differences could be significant.
7
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2022 and 2021
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
| 2. | BASIS OF PRESENTATION [CONTINUED] |
These unaudited condensed consolidated interim financial statements include the financial statements of BRP and its subsidiaries. BRP controls all of its subsidiaries that are wholly owned through voting equity interests, except for Regionales Innovations Centrum GmbH in Austria for which a non-controlling interest of 25% is recorded upon consolidation, BRP Commerce & Trade Shanghai Co. Ltd in China for which a non-controlling interest of 20% is recorded upon consolidation and Pinion GmbH in Germany for which there is a non-controlling interest of 20%. BRP is also part of a joint venture located in Austria. All inter-company transactions and balances have been eliminated upon consolidation.
The Company’s revenues and operating income experience substantial fluctuations from quarter to quarter. In general, wholesale of the Company’s products are higher in the period immediately preceding and during their particular season of use. However, the mix of product sales may vary considerably from time to time as a result of changes in seasonal and geographic demand, the introduction of new products and models and production scheduling for particular types of products.
On November 29, 2022, the Board of Directors of the Company approved these unaudited condensed consolidated interim financial statements for the three- and nine-month periods ended October 31, 2022 and 2021.
| 3. | BUSINESS COMBINATIONS |
Transactions for the three-month period ended October 31, 2022
On August 4, 2022, the Company completed the acquisition of 80% of the outstanding shares of Pinion GmbH (“Pinion”) for a consideration of €61.9 million ($81.4 million) paid in cash. Pinion is located in Denkendorf, Germany and designs, develops, assembles, and sells mechanical gearboxes for traditional and electric bicycles.
On October 5, 2022, the Company completed the acquisition of substantially all the assets related to the powersports business of Kongsberg Automotive ASA and its subsidiary Kongsberg Inc. located in Shawinigan, Quebec (“KA Shawinigan”) for a consideration of $127.8 million paid in cash. KA Shawinigan is a leading player in electronic and mechatronic product development and manufacturing and a long-standing supplier of BRP.
The Company will finalize the accounting for these acquisitions during the next quarters, specifically the assessment of the fair value of assets acquired and liabilities assumed, and goodwill related to these acquisitions.
Following the acquisition of Pinion and KA Shawinigan, the Company created a new Low Voltage & Human Assisted Group (“LVHA”). The creation of LVHA allows the Company to pursue its growth strategy with product categories that overlap recreational, urban mobility and services with low voltage and human assisted products. LVHA is not a reportable segment for the Company.
8
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2022 and 2021
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
| 3. | BUSINESS COMBINATIONS [CONTINUED] |
The preliminary value of the assets acquired, liabilities assumed and non-controlling interest were as follows, as at the acquisition date:
| Pinion | KA Shawinigan |
Total | ||||||||||
| Assets acquired |
||||||||||||
| Current assets |
$7.7 | [a] | $26.2 | $33.9 | ||||||||
| Non-current assets |
5.3 | 3.2 | 8.5 | |||||||||
| Property, plant and equipment |
1.3 | 9.5 | 10.8 | |||||||||
| Patents |
16.2 | 28.3 | 44.5 | |||||||||
| Trademarks |
15.4 | — | 15.4 | |||||||||
| Customer relationships |
13.0 | — | 13.0 | |||||||||
| Goodwill [b] [c] |
72.8 | 64.9 | 137.7 | |||||||||
| Total assets acquired |
131.7 | 132.1 | 263.8 | |||||||||
| Liabilities assumed |
||||||||||||
| Current liabilities |
(11.1 | ) | (3.4 | ) | (14.5 | ) | ||||||
| Non-current liabilities |
(18.8 | ) | (0.9 | ) | (19.7 | ) | ||||||
| Total liabilities assumed |
(29.9 | ) | (4.3 | ) | (34.2 | ) | ||||||
| Non-controlling interest [d] |
(20.4 | ) | — | (20.4 | ) | |||||||
| Total consideration paid in cash |
$81.4 | $127.8 | $209.2 | |||||||||
| [a] | Including $0.4 million (€0.3 million) of cash |
| [b] | Goodwill arises principally from expected synergies and future growth. |
| [c] | Goodwill is deductible for tax purposes only for KA Shawinigan. |
| [d] | Non-controlling interest is measured at fair value as at the acquisition date. |
Pinion
The Company’s consolidated statement of net income included the operating results of Pinion since the acquisition date. For the period ended October 31, 2022, it represented revenues of $5.1 million. Net income for the period ended October 31, 2022 was not significant.
Had the Company acquired Pinion at the beginning of the year ended October 31, 2022, its revenues and net income increase would not have been significant.
The Company incurred acquisition-related costs of $0.8 million for Pinion, which have been recorded in general and administrative expenses.
As part of the acquisition, the Company and the non-controlling interest shareholders in Pinion (the “Parties”) entered into put and call options, exercisable by the Parties after January 2026 and before June 2028, allowing or requiring the Company to acquire all the remaining shares for a cash consideration set according to a predetermined purchase price formula that is based on Pinion’s performance. At the acquisition date, the Company recorded a financial liability and reduced the non-controlling interests by $20.4 million, representing the estimated present value of the redemption amount. As a result, no profit is attributed to the non-controlling interest. Subsequent remeasurement adjustments of the financial liability will be recorded in the consolidated statements of net income.
9
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2022 and 2021
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
| 3. | BUSINESS COMBINATIONS [CONTINUED] |
KA Shawinigan
The Company’s consolidated statement of net income included the operating results of KA Shawinigan since the acquisition date. For the period ended October 31, 2022, revenues and net income were not significant.
Had the Company acquired KA Shawinigan at the beginning of the year ended October 31, 2022, its revenues and net income increase would not have been significant as the assets acquired of KA Shawinigan were used mainly to supply the Company.
The Company incurred acquisition-related costs of $0.8 million for KA Shawinigan, which have been recorded in general and administrative expenses.
| 4. | OTHER FINANCIAL ASSETS |
The Company’s other financial assets were as follows, as at:
| October 31, 2022 |
January 31, 2022 | |||||||
| Restricted investments [a] |
$11.8 | $14.3 | ||||||
| Derivative financial instruments |
124.8 | 38.0 | ||||||
| Advances to suppliers related to property, plant and equipment |
57.6 | 50.4 | ||||||
| Other |
26.6 | 24.1 | ||||||
| Total other financial assets |
$220.8 | $126.8 | ||||||
| Current |
85.5 | 73.6 | ||||||
| Non-current |
135.3 | 53.2 | ||||||
| Total other financial assets |
$220.8 | $126.8 | ||||||
| [a] | The restricted investments are publicly traded bonds that can only be used for severance payments and pension costs associated with Austrian pension plans, and are not available for general corporate use. |
The non-current portion is mainly attributable to the restricted investments and derivative financial instruments.
| 5. | INVENTORIES |
The Company’s inventories were as follows, as at:
| October 31, 2022 |
January 31, 2022 | |||||||
| Materials and work in progress |
$1,668.3 | $1,193.6 | ||||||
| Finished products |
424.9 | 176.9 | ||||||
| Parts, accessories and apparel |
381.6 | 320.8 | ||||||
| Total inventories |
$2,474.8 | $1,691.3 | ||||||
The Company recognized in the condensed consolidated interim statements of net income during the three- and nine-month periods ended October 31, 2022, a write-down on inventories of $18.7 million and $29.7 million respectively ($7.8 million and $16.8 million respectively during the three- and nine-month periods ended October 31, 2021).
10
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2022 and 2021
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
| 6. | OTHER ASSETS |
The Company’s other assets were as follows, as at:
| October 31, 2022 |
January 31, 2022 | |||||||
| Prepaids |
$35.0 | $36.1 | ||||||
| Deferred financing cost |
5.7 | 4.1 | ||||||
| Other [a] |
35.6 | 102.8 | ||||||
| Total other assets |
$76.3 | $143.0 | ||||||
| Current |
72.4 | 140.1 | ||||||
| Non-current |
3.9 | 2.9 | ||||||
| Total other assets |
$76.3 | $143.0 | ||||||
| [a] | The balance is mainly attributable to the substantially completed units awaiting installation of missing components at dealers for which the legal property title has been transferred while not qualifying for revenue recognition as at October 31, 2022. The Company was either compensated for those units through its amended financing agreement with its third-party financing provider or has an unconditional right to be compensated, which ultimately resulted in the deferral of revenue recognition. The revenue will be recognized upon completion of its performance obligation, concurrently with the aforementioned other asset that will be recognized as cost of sales. |
| 7. | INTANGIBLE ASSETS |
The Company’s intangible assets were as follows, as at:
| October 31, 2022 | January 31, 2022 | |||||||||||||||||||||||||||
| Cost | Accumulated depreciation |
Carrying amount |
Cost | Accumulated depreciation |
Carrying amount | |||||||||||||||||||||||
| Goodwill |
$253.5 | $— | $253.5 | $115.9 | $— | $115.9 | ||||||||||||||||||||||
| Trademarks |
216.7 | — | 216.7 | 197.2 | — | 197.2 | ||||||||||||||||||||||
| Software and licences |
293.3 | 138.1 | 155.2 | 249.2 | 125.4 | 123.8 | ||||||||||||||||||||||
| Patents |
48.1 | 2.5 | 45.6 | 5.1 | 1.9 | 3.2 | ||||||||||||||||||||||
| Dealer networks |
136.8 | 85.8 | 51.0 | 131.0 | 76.5 | 54.5 | ||||||||||||||||||||||
| Customer relationships |
35.1 | 21.7 | 13.4 | 22.9 | 22.6 | 0.3 | ||||||||||||||||||||||
| Total |
$983.5 | $248.1 | $735.4 | $721.3 | $226.4 | $494.9 | ||||||||||||||||||||||
The following table explains the changes in Company’s intangible assets during the nine-month period ended October 31, 2022:
| Carrying amount as at January 31, 2022 |
Additions | Business combinations (Note 3) |
Depreciation | Effect of foreign currency exchange rate changes |
Carrying amount as at October 31, 2022 | |||||||||||||||||||||||
| Goodwill |
$115.9 | $— | $137.7 | $— | $(0.1 | ) | $253.5 | |||||||||||||||||||||
| Trademarks |
197.2 | — | 15.4 | — | 4.1 | 216.7 | ||||||||||||||||||||||
| Software and licences |
123.8 | 43.2 | 0.8 | (11.7 | ) | (0.9 | ) | 155.2 | ||||||||||||||||||||
| Patents |
3.2 | — | 44.5 | (0.7 | ) | (1.4 | ) | 45.6 | ||||||||||||||||||||
| Dealer networks |
54.5 | — | — | (5.0 | ) | 1.5 | 51.0 | |||||||||||||||||||||
| Customer relationships |
0.3 | — | 13.0 | (0.4 | ) | 0.5 | 13.4 | |||||||||||||||||||||
| Total |
$494.9 | $43.2 | $211.4 | $(17.8 | ) | $3.7 | $735.4 | |||||||||||||||||||||
11
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2022 and 2021
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
| 8. | REVOLVING CREDIT FACILITIES |
On February 16, 2022, the Company amended its $800.0 million revolving credit facilities to increase the availability to $1,100.0 million and replace LIBOR with the Secured Overnight Financing Rate (‘‘SOFR’’) as the benchmark interest rate. Subsequently, on June 10, 2022, the Company further added to its available commitment under its revolving credit facilities by $400 million the availability increasing to $1,500.0 million. The pricing grid and other conditions remained unchanged for both increases.
As at October 31, 2022, the Company had $356.5 million of outstanding indebtedness under the Revolving Credit Facilities and $6.6 million under bank overdraft.
The applicable interest rates vary depending on a leverage ratio. The leverage ratio is defined in the Revolving Credit Facilities agreement by the ratio of net debt to consolidated cash flows of the Company (the “Leverage ratio”). The applicable interest rates are as follows:
| (i) | U.S. dollars at either |
| (a) | Term SOFR (defined as the forward-looking term rate based on SOFR plus a customary credit spread adjustment) plus 1.45% to 3.00% per annum; or |
| (b) | U.S. Base Rate plus 0.45% to 2.00% per annum; or |
| (c) | U.S. Prime Rate plus 0.45% to 2.00% per annum; |
| (ii) | Canadian dollars at either |
| (a) | Bankers’ Acceptance plus 1.45% to 3.00% per annum; or |
| (b) | Canadian Prime Rate plus 0.45% to 2.00% per annum |
| (iii) | Euros at EURIBOR plus 1.45% to 3.00% per annum. |
In addition, the Company incurs commitment fees of 0.25% to 0.40% per annum on the undrawn amount of the Revolving Credit Facilities.
As at October 31, 2022, the cost of borrowing under the Revolving Credit Facilities was as follows:
| (i) | U.S. dollars at either |
| (a) | Term SOFR plus 1.70% per annum; or |
| (b) | U.S. Base Rate plus 0.70% per annum; or |
| (c) | U.S. Prime Rate plus 0.70% per annum; |
| (ii) | Canadian dollars at either |
| (a) | Bankers’ Acceptance plus 1.70% per annum; or |
| (b) | Canadian Prime Rate plus 0.70% per annum |
| (iii) | Euros at EURIBOR plus 1.70% per annum. |
As at October 31, 2022, the commitment fees on the undrawn amount of the Revolving Credit Facilities were 0.25% per annum.
The Company is required to maintain, under certain conditions, a minimum fixed charge coverage ratio. Additionally, the total available borrowing under the Revolving Credit Facilities is subject to a borrowing base calculation representing 75% of the carrying amount of trade and other receivables plus 50% of the carrying amount of inventories.
12
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2022 and 2021
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
| 9. | PROVISIONS |
The Company’s provisions were as follows, as at:
| October 31, 2022 |
January 31, 2022 | |||||||
| Product-related |
$550.7 | $372.8 | ||||||
| Restructuring |
3.4 | 3.2 | ||||||
| Other |
46.5 | 38.3 | ||||||
| Total provisions |
$600.6 | $414.3 | ||||||
| Current |
477.2 | 328.1 | ||||||
| Non-current |
123.4 | 86.2 | ||||||
| Total provisions |
$600.6 | $414.3 | ||||||
Product-related provisions include provisions for regular warranty coverage on products sold, product liability provisions and provisions related to sales programs offered by the Company to its Customers in order to support the retail activity.
The non-current portion of provisions is mainly attributable to product-related provisions.
The changes in provisions were as follows:
| Product-related | Restructuring | Other | Total | |||||||||||||
| Balance as at January 31, 2022 |
$372.8 | $3.2 | $38.3 | $414.3 | ||||||||||||
| Expensed during the period |
669.6 | 0.8 | 22.8 | 693.2 | ||||||||||||
| Additions through business combinations |
0.2 | — | — | 0.2 | ||||||||||||
| Paid during the period |
(503.1 | ) | (0.8 | ) | (14.2 | ) | (518.1 | ) | ||||||||
| Reversed during the period |
(2.4 | ) | — | — | (2.4 | ) | ||||||||||
| Effect of foreign currency exchange rate changes |
21.7 | 0.2 | (0.4 | ) | 21.5 | |||||||||||
| Unwinding of discount and effect of changes in discounting estimates |
(8.1 | ) | — | — | (8.1 | ) | ||||||||||
| Balance as at October 31, 2022 |
$550.7 | $3.4 | $46.5 | $600.6 | ||||||||||||
| 10. | OTHER FINANCIAL LIABILITIES |
The Company’s other financial liabilities were as follows, as at:
| October 31, 2022 |
January 31, 2022 | |||||||
| Dealer holdback programs and customer deposits |
$60.5 | $83.4 | ||||||
| Due to Bombardier Inc. |
23.1 | 22.1 | ||||||
| Derivative financial instruments |
81.2 | 10.3 | ||||||
| Non-controlling interest liability |
20.8 | — | ||||||
| Financial liability related to share repurchase programs |
— | 47.2 | ||||||
| Other |
14.0 | 23.3 | ||||||
| Total other financial liabilities |
$199.6 | $186.3 | ||||||
| Current |
135.5 | 152.3 | ||||||
| Non-current [a] |
64.1 | 34.0 | ||||||
| Total other financial liabilities |
$199.6 | $186.3 | ||||||
[a] The non-current portion is mainly comprised of the amount due to Bombardier Inc. in connection with indemnification related to income taxes and the amount of the non-controlling interest liability.
13
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2022 and 2021
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
| 11. | LONG-TERM DEBT |
As at October 31, 2022 and January 31, 2022, the maturity dates, interest rates, outstanding nominal amounts and carrying amounts of long-term debt were as follows:
| October 31, 2022 | ||||||||||||||||||||
| Maturity date | Contractual interest rate |
Effective interest rate |
Outstanding nominal amount |
Carrying amount | ||||||||||||||||
| Term Facility |
||||||||||||||||||||
| Term Loan B-1 |
May 2027 | 5.75% | 5.80% | U.S. $1,481.0 | $2,016.9 | [a] | ||||||||||||||
| Term Loan B-2 |
June 2024 | 6.83% | 7.30% | U.S. $100.0 | 135.4 | [a] | ||||||||||||||
| Term Loans |
Dec. 2022 to Dec. 2030 | 0.80% to 2.70% | 1.90% to 3.81% | €138.8 | 179.7 | |||||||||||||||
| Total long-term debt |
$2,332.0 | |||||||||||||||||||
| Current |
51.0 | |||||||||||||||||||
| Non-current |
2,281.0 | |||||||||||||||||||
| Total long-term debt |
$2,332.0 | |||||||||||||||||||
| [a] | Net of unamortized transaction costs of $3.3 million for Term Loan B-1 and $1.0 million for Term Loan B-2. |
| January 31, 2022 | ||||||||||||||||||||
| Maturity date | Contractual interest rate |
Effective interest rate |
Outstanding nominal amount |
Carrying amount | ||||||||||||||||
| Term Facility |
||||||||||||||||||||
| Term Loan B-1 |
May 2027 | 2.11% | 2.14% | U.S. $1,492.4 | $1,891.1 | [a] | ||||||||||||||
| Term Loans |
Mar. 2022 to Dec. 2030 | 0.75% to 1.90% | 0.88% to 4.67% | €110.5 | 149.4 | |||||||||||||||
| Total long-term debt |
$2,040.5 | |||||||||||||||||||
| Current |
103.1 | |||||||||||||||||||
| Non-current |
1,937.4 | |||||||||||||||||||
| Total long-term debt |
$2,040.5 | |||||||||||||||||||
| [a] | Net of unamortized transaction costs of $3.6 million. |
The following table explains the changes in long-term debt during the nine-month period ended October 31, 2022:
| Statements of cash flows | Non-cash changes | |||||||||||||||||||||||||||
| Carrying amount as at January 31, 2022 |
Issuance | Repayment | Effect of foreign currency exchange rate changes |
Other | Carrying amount as at October 31, 2022 |
|||||||||||||||||||||||
| Term Facility |
$1,891.1 | $127.8 | $(14.9) | $148.6 | $(0.3) | $2,152.3 | ||||||||||||||||||||||
| Term Loans |
149.4 | 116.7 | (79.9) | (6.9) | 0.4 | 179.7 | ||||||||||||||||||||||
| Total |
$2,040.5 | $244.5 | $(94.8) | $141.7 | $0.1 | $2,332.0 | ||||||||||||||||||||||
14
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2022 and 2021
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
| 11. | LONG-TERM DEBT [CONTINUED] |
| a) | Term Facility |
On June 14, 2022, the Company entered into an incremental U.S. $100.0 million tranche under its Term Facility. This new tranche matures in June 2024 and, consistent with the existing tranche of the Term Facility, is exempt of financial covenants. The Company incurred transaction costs of $1.1 million, which have been incorporated in the carrying amount of this new tranche of the Term Facility and are amortized over its expected life using the effective interest rate method.
As at October 31, 2022, the cost of borrowing under the Term Loan B-1 was as follows:
| (i) | LIBOR plus 2.00% per annum, with a LIBOR floor of 0.00%; or |
| (ii) | U.S. Base Rate plus 1.00%; or |
| (iii) | U.S. Prime Rate plus 1.00% |
Under the Term Facility, the cost of borrowing in U.S. Base Rate or U.S. Prime Rate cannot be lower than the cost of borrowing in LIBOR.
As at October 31, 2022, the cost of borrowing under the Term Loan B-2 was as follows:
| (i) | Term SOFR (defined as the forward-looking term rate based on SOFR plus a customary credit spread adjustment) plus 3.00% per annum, with a Term SOFR floor of 0.5%; or |
| (ii) | U.S. Base Rate plus 2.00% |
The Company is required to repay a minimum of 0.25% of the nominal amount each quarter. Consequently, the Company repaid an amount of U.S. $11.4 million ($14.9 million) during the nine-month period ended October 31, 2022. Also, the Company may be required to repay a portion of the Term Facility in the event that it has an excess cash position at the end of the fiscal year and its leverage ratio is above a certain threshold level.
| b) | Term Loans |
On May 5, 2022, the Company fully repaid the balance of its €55.0 million ($74.2 million) unsecured loan contracted under an Austrian government COVID-19 program in Fiscal 2021.
During the nine-month period ended October 31, 2022, the Company entered into unsecured loan agreements at favourable interest rates under an Austrian government program. This program supports research and development projects based on the Company’s incurred expenses in Austria. The term loans have a nominal amount of €86.8 million ($116.7 million) with an interest rate varying between 0.50% and 0.84% with maturity dates varying from June 2025 to June 2029. The Company recognized a deferred grant revenue, representing the difference between the fair value of the term loan at inception and the cash received, of €4.6 million ($6.2 million). The grants are recognized linearly over the maturity of the loans as other income.
15
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2022 and 2021
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
| 12. | CAPITAL STOCK |
The changes in capital stock issued and outstanding were as follows:
| Number of shares | Carrying Amount | |||||||
| Subordinate voting shares | ||||||||
| Balance as at January 31, 2022 |
38,543,761 | $257.1 | ||||||
| Issued upon exercise of stock options |
137,861 | 7.3 | ||||||
| Issued in exchange of multiple voting shares |
570,779 | 0.1 | ||||||
| Repurchased under the substantial issuer bid offer |
(2,427,184 | ) | (17.1 | ) | ||||
| Repurchased under the normal course issuer bid program |
(463,950 | ) | (3.1 | ) | ||||
| Balance as at October 31, 2022 |
36,361,267 | $244.3 | ||||||
|
|
||||||||
| Multiple voting shares |
||||||||
| Balance as at January 31, 2022 |
42,954,979 | $3.5 | ||||||
| Exchanged for subordinate voting shares |
(570,779 | ) | (0.1 | ) | ||||
| Balance as at October 31, 2022 |
42,384,200 | $3.4 | ||||||
|
|
||||||||
| Total outstanding as at October 31, 2022 |
78,745,467 | $247.7 | ||||||
Substantial issuer bid offer (“SIB”)
On May 11, 2022, the Company repurchased for cancellation 2,427,184 subordinate voting shares following the completion of its SIB for a total consideration of $250.0 million, of which $16.1 million represents the carrying amount of the shares repurchased and $233.9 million represents the amount charged to retained losses. Prior to the completion of the SIB, Beaudier group converted 570,779 of multiple voting shares into an equivalent number of subordinate voting shares. These converted shares were repurchased and cancelled as part of the SIB. The Company incurred $1.0 million of fees and expenses relating to the SIB, which were recorded in capital stock.
Normal Course Issuer Bid Program (“NCIB”)
During the nine-month period ended October 31, 2022, the Company continued its share repurchases under the NCIB that was announced and started during the fiscal year ended January 31, 2022 and repurchased 463,950 subordinate voting shares for a total consideration of $47.2 million.
When the Company was not permitted to purchase subordinate voting shares due to regulatory restrictions or self-imposed blackout periods, an automatic share purchase plan with a designated broker allowed the purchase of subordinate voting shares under pre-set conditions. During the nine-month period ended October 31, 2022, the Company recognized a gain of $1.8 million in financing income related to the automatic share purchase plan. The gain represents the difference between the share price used to establish the financial liability at the end of each quarter and the amount actually paid to repurchase shares during the regulatory restrictions or self-imposed blackout periods.
Of the total consideration of $47.2 million, $3.1 million represents the carrying amount of the shares repurchased, $45.9 million represents the amount charged to retained losses and $1.8 million represents the gain recognized in net income.
16
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2022 and 2021
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
| 13. | STOCK OPTION PLAN |
During the nine-month period ended October 31, 2022 and 2021, the Company granted respectively 573,600 and 513,300 stock options to eligible officers and employees to acquire subordinated voting shares at an average exercise price of $103.55 and $109.88 respectively. The fair value of the options at the grant date was $40.72 and $48.89, respectively. Such stock options are time vesting and 25% of the options will vest on each of the first, second, third and fourth anniversary of the grant. The stock options have a ten-year term at the end of which the options expire.
| 14. | SEGMENTED INFORMATION |
Details of segment information were as follows:
| For the three-month period ended October 31, 2022 | Powersports segment |
Marine segment |
Inter- segment eliminations |
Total | ||||||||||||
| Revenues |
$2,598.7 | $118.8 | $(8.2) | $ | 2,709.3 | |||||||||||
| Cost of sales |
1,949.9 | 112.9 | (8.2) | 2,054.6 | ||||||||||||
| Gross profit |
648.8 | 5.9 | — | 654.7 | ||||||||||||
| Total operating expenses |
269.9 | |||||||||||||||
| Operating income |
384.8 | |||||||||||||||
| Financing costs |
33.1 | |||||||||||||||
| Financing income |
(0.3 | ) | ||||||||||||||
| Foreign exchange loss on long-term debt |
132.6 | |||||||||||||||
| Income before income taxes |
219.4 | |||||||||||||||
| Income tax expense |
77.8 | |||||||||||||||
| Net income |
$141.6 | |||||||||||||||
17
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2022 and 2021
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
| 14. | SEGMENTED INFORMATION [CONTINUED] |
| For the three-month period ended October 31, 2021 | Powersports segment |
Marine segment |
Inter- segment eliminations |
Total | ||||||||||||
| Revenues |
$1,457.5 | $136.3 | $(5.8) | $ | 1,588.0 | |||||||||||
| Cost of sales |
1,067.5 | 115.7 | (5.8) | 1,177.4 | ||||||||||||
| Gross profit |
390.0 | 20.6 | — | 410.6 | ||||||||||||
| Total operating expenses |
225.1 | |||||||||||||||
| Operating income |
185.5 | |||||||||||||||
| Financing costs |
16.5 | |||||||||||||||
| Financing income |
(0.7 | ) | ||||||||||||||
| Foreign exchange gain on long-term debt |
(9.9 | ) | ||||||||||||||
| Income before income taxes |
179.6 | |||||||||||||||
| Income tax expense |
51.9 | |||||||||||||||
| Net income |
$127.7 | |||||||||||||||
| For the nine-month period ended October 31, 2022 | Powersports segment |
Marine segment |
Inter- segment eliminations |
Total | ||||||||||||
| Revenues |
$6,592.2 | $390.4 | $(25.5) | $6,957.1 | ||||||||||||
| Cost of sales |
4,925.7 | 345.1 | (25.5) | 5,245.3 | ||||||||||||
| Gross profit |
1,666.5 | 45.3 | — | 1,711.8 | ||||||||||||
| Total operating expenses |
781.6 | |||||||||||||||
| Operating income |
930.2 | |||||||||||||||
| Financing costs |
77.4 | |||||||||||||||
| Financing income |
(4.6 | ) | ||||||||||||||
| Foreign exchange loss on long-term debt |
148.6 | |||||||||||||||
| Income before income taxes |
708.8 | |||||||||||||||
| Income tax expense |
208.5 | |||||||||||||||
| Net income |
$500.3 | |||||||||||||||
18
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2022 and 2021
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
| 14. | SEGMENTED INFORMATION [CONTINUED] |
| For the nine-month period ended October 31, 2021 | Powersports segment |
Marine segment |
Inter- segment eliminations |
Total | ||||||||||||
| Revenues |
$4,922.8 | $392.7 | $(15.1) | $ | 5,300.4 | |||||||||||
| Cost of sales |
3,457.1 | 335.7 | (15.1) | 3,777.7 | ||||||||||||
| Gross profit |
1,465.7 | 57.0 | — | 1,522.7 | ||||||||||||
| Total operating expenses |
682.3 | |||||||||||||||
| Operating income |
840.4 | |||||||||||||||
| Financing costs |
114.9 | |||||||||||||||
| Financing income |
(3.5 | ) | ||||||||||||||
| Foreign exchange gain on long-term debt |
(58.9 | ) | ||||||||||||||
| Income before income taxes |
787.9 | |||||||||||||||
| Income tax expense |
202.9 | |||||||||||||||
| Net income |
$585.0 | |||||||||||||||
| 15. | EARNINGS PER SHARE |
| a) | Basic earnings per share |
Details of basic earnings per share were as follows:
| Three-month periods ended | Nine-month periods ended | |||||||||||||||||||
| October 31, 2022 |
October 31, 2021 |
October 31, 2022 |
October 31, 2021 |
|||||||||||||||||
| Net income attributable to shareholders |
$141.2 | $127.6 | $498.6 | $584.5 | ||||||||||||||||
| Weighted average number of shares |
78,735,106 | 81,168,487 | 79,573,969 | 83,312,905 | ||||||||||||||||
| Earnings per share - basic |
$1.79 | $1.57 | $6.27 | $7.02 | ||||||||||||||||
| b) | Diluted earnings per share |
Details of diluted earnings per share were as follows:
| Three-month periods ended | Nine-month periods ended | |||||||||||||||||||
| October 31, 2022 |
October 31, 2021 |
October 31, 2022 |
October 31, 2021 |
|||||||||||||||||
| Net income attributable to shareholders |
$141.2 | $127.6 | $498.6 | $584.5 | ||||||||||||||||
| Weighted average number of shares |
78,735,106 | 81,168,487 | 79,573,969 | 83,312,905 | ||||||||||||||||
| Dilutive effect of stock options |
1,518,328 | 2,357,403 | 1,563,318 | 2,478,456 | ||||||||||||||||
| Weighted average number of diluted shares |
80,253,434 | 83,525,890 | 81,137,287 | 85,791,361 | ||||||||||||||||
| Earnings per share - diluted |
$1.76 | $1.53 | $6.15 | $6.81 | ||||||||||||||||
19
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2022 and 2021
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
| 16. | REVENUES |
Details of revenues were as follows:
| Three-month periods ended | Nine-month periods ended | |||||||||||||||
| October 31, 2022 |
October 31, 2021 |
October 31, 2022 |
October 31, 2021 |
|||||||||||||
| Powersports | ||||||||||||||||
| Year-Round Products |
$1,279.8 | $736.3 | $3,572.3 | $2,614.4 | ||||||||||||
| Seasonal Products |
1,020.9 | 437.3 | 2,120.8 | 1,475.2 | ||||||||||||
| Powersports PA&A and OEM Engines |
297.5 | 283.7 | 898.3 | 832.8 | ||||||||||||
| Marine |
111.1 | 130.7 | 365.7 | 378.0 | ||||||||||||
| Total |
$2,709.3 | $1,588.0 | $6,957.1 | $5,300.4 | ||||||||||||
The following table provides geographic information on Company’s revenues. The attribution of revenues was based on customer locations.
| Three-month periods ended | Nine-month periods ended | |||||||||||||||
| October 31, 2022 |
October 31, 2021 |
October 31, 2022 |
October 31, 2021 | |||||||||||||
| United States |
$1,683.3 | $836.8 | $4,264.8 | $2,981.9 | ||||||||||||
| Canada |
441.9 | 294.7 | 1,077.9 | 864.8 | ||||||||||||
| Europe |
308.7 | 272.4 | 851.6 | 867.3 | ||||||||||||
| Asia Pacific |
173.0 | 125.1 | 482.6 | 380.3 | ||||||||||||
| Latin America |
99.4 | 56.6 | 271.8 | 196.9 | ||||||||||||
| Other |
3.0 | 2.4 | 8.4 | 9.2 | ||||||||||||
| $2,709.3 | $1,588.0 | $6,957.1 | $5,300.4 | |||||||||||||
20
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2022 and 2021
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
| 17. | OTHER OPERATING EXPENSES (INCOME) |
Details of Other operating expenses (income) were as follows:
| Three-month periods ended | Nine-month periods ended | |||||||||||||
| October 31, 2022 |
October 31, 2021 |
October 31, 2022 |
October 31, 2021 | |||||||||||
| Foreign exchange (gain) loss on working capital elements |
$(9.2) | $(3.3) | $2.5 | $(9.4) | ||||||||||
| (Gain) loss on forward exchange contracts |
10.5 | (2.1) | (2.6) | 6.7 | ||||||||||
| Other |
(0.2) | (3.1) | (0.3) | (0.4) | ||||||||||
| Total |
$1.1 | $(8.5) | $(0.4) | $(3.1) | ||||||||||
| 18. | FINANCING COSTS AND INCOME |
Details of financing costs and financing income were as follows:
| Three-month periods ended | Nine-month periods ended | |||||||||||||||
| October 31, 2022 |
October 31, 2021 |
October 31, 2022 |
October 31, 2021 | |||||||||||||
| Interest on long-term debt |
$21.4 | $11.3 | $51.0 | $34.8 | ||||||||||||
| Transaction costs on long-term debt |
— | — | 0.7 | 44.3 | ||||||||||||
| Interest on lease liabilities |
1.4 | 2.0 | 3.8 | 6.2 | ||||||||||||
| Net interest on employee future benefit liabilities |
1.2 | 1.3 | 3.5 | 3.8 | ||||||||||||
| Interest and commitment fees on revolving credit facilities |
7.9 | 0.9 | 16.0 | 2.4 | ||||||||||||
| Other |
1.2 | 1.0 | 2.4 | 23.4 | ||||||||||||
| Financing costs |
33.1 | 16.5 | 77.4 | 114.9 | ||||||||||||
| Financing income |
(0.3 | ) | (0.7 | ) | (4.6 | ) | (3.5 | ) | ||||||||
| Net financing costs |
$32.8 | $15.8 | $72.8 | $111.4 | ||||||||||||
21
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2022 and 2021
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
| 19. | INCOME TAXES |
Details of income tax expense were as follows:
| Three-month periods ended | Nine-month periods ended | |||||||||||
| October 31, 2022 |
October 31, 2021 |
October 31, 2022 |
October 31, 2021 | |||||||||
| Current income tax expense |
||||||||||||
| Related to current year |
$74.4 | $38.8 | $246.7 | $201.0 | ||||||||
| Related to prior years |
(2.4) | 0.4 | (3.3) | (0.2) | ||||||||
| 72.0 | 39.2 | 243.4 | 200.8 | |||||||||
| Deferred income tax expense (recovery) |
||||||||||||
| Temporary differences |
(12.2) | 13.9 | (56.8) | 10.3 | ||||||||
| Effect of income tax rate changes on deferred income taxes |
(0.1) | — | — | — | ||||||||
| Increase (decrease) in valuation allowance |
18.1 | (1.2) | 21.9 | (8.2) | ||||||||
| 5.8 | 12.7 | (34.9) | 2.1 | |||||||||
| Income tax expense |
$77.8 | $51.9 | $208.5 | $202.9 | ||||||||
The reconciliation of income taxes computed at the Canadian statutory rates to income tax expense recorded was as follows:
| Three-month periods ended | Nine-month periods ended | |||||||||||||||||||||||||||||||||||
| October 31, 2022 |
October 31, 2021 |
October 31, 2022 |
October 31, 2021 |
|||||||||||||||||||||||||||||||||
| Income taxes calculated at statutory rates |
$58.1 | 26.5% | $47.6 | 26.5% | $187.8 | 26.5% | $208.8 | 26.5% | ||||||||||||||||||||||||||||
| Increase (decrease) resulting from: |
||||||||||||||||||||||||||||||||||||
| Income tax rate differential of foreign subsidiaries |
(6.8 | ) | (0.9 | ) | (2.3 | ) | (4.4 | ) | ||||||||||||||||||||||||||||
| Effect of income tax rate changes on deferred income taxes |
(0.1 | ) | — | — | — | |||||||||||||||||||||||||||||||
| Increase (decrease) in valuation allowance |
18.1 | (1.2 | ) | 21.9 | (8.2 | ) | ||||||||||||||||||||||||||||||
| Recognition of income taxes on foreign currency translation |
(7.4 | ) | 0.7 | (10.4 | ) | 1.2 | ||||||||||||||||||||||||||||||
| Permanent differences [a] |
17.3 | 0.3 | 18.0 | 1.3 | ||||||||||||||||||||||||||||||||
| Other |
(1.4 | ) | 5.4 | (6.5 | ) | 4.2 | ||||||||||||||||||||||||||||||
| Income tax expense |
$77.8 | $51.9 | $208.5 | $202.9 | ||||||||||||||||||||||||||||||||
| [a] | The permanent differences result mainly from the foreign exchange (gain) loss on long-term debt denominated in U.S. dollars. |
22
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2022 and 2021
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
| 20. | FINANCIAL INSTRUMENTS |
| a) | Fair value |
The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair values of the Company’s financial instruments take into account the credit risk embedded in the instrument. For financial assets, the credit risk of the counterparty is considered whereas for financial liabilities, the Company’s credit risk is considered.
In order to determine the fair value of its financial instruments, the Company uses, when active markets exist, quoted prices from these markets (“Level 1” fair value). When public quotations are not available in the market, fair values are determined using valuation techniques. When inputs used in the valuation techniques are only inputs directly and indirectly observable in the marketplace, fair value is presented as “Level 2” fair value. If fair value is assessed using inputs that require considerable judgment from the Company in interpreting market data and developing estimates, fair value is presented as “Level 3” fair value. For Level 3 fair value, the use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair values.
The fair value level, carrying amount and fair value of restricted investments, non-controlling interest liability, derivative financial instruments and long-term debt were as follows:
| As at October 31, 2022 | ||||||||||
| Fair value level | Carrying amount | Fair value | ||||||||
| Restricted investments (Note 4) |
Level 2 | $11.8 | $11.8 | |||||||
| Non-controlling interest liability (Note 10) |
Level 3 | $(20.8) | $(20.8) | |||||||
| Derivative financial instruments |
||||||||||
| Forward exchange contracts |
||||||||||
| Favourable |
$11.5 | $11.5 | ||||||||
| (Unfavourable) |
(80.9) | (80.9) | ||||||||
| Interest rate cap |
113.3 | 113.3 | ||||||||
| Inflation rate swap |
(0.3) | (0.3) | ||||||||
| Level 2 | $43.6 | $43.6 | ||||||||
| Long-term debt (including current portion) |
||||||||||
| Term Facility (Note 11) |
Level 1 | $(2,152.3) | $(2,082.0) | |||||||
| Term Loans (Note 11) |
Level 2 | (179.7) | (185.0) | |||||||
| $(2,332.0) | $(2,267.0) | |||||||||
For cash, trade and other receivables, revolving credit facilities and bank overdraft, trade payables and accruals, dealer holdback programs and customer deposits, the carrying amounts reported on the condensed consolidated interim statements of financial position or in the notes approximate the fair values of these items due to their short-term nature.
Cash includes $12.9 million held by BRP Saint Petersburg LLC. This cash is subject to regulatory restrictions and is therefore not available for general use by the other entities within the group.
23
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2022 and 2021
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
| 20. | FINANCIAL INSTRUMENTS [CONTINUED] |
| b) | Liquidity risk |
The following table summarizes the contractual maturities of the Company’s financial liabilities as at October 31, 2022:
| Less than 1 year |
1-3 years | 4-5 years | More than 5 years |
Total amount | ||||||||||||||||
| Trade payables and accruals |
$1,858.4 | $— | $— | $— | $1,858.4 | |||||||||||||||
| Long-term debt (including interest) |
179.5 | 485.6 | 2,175.1 | 56.4 | 2,896.6 | |||||||||||||||
| Lease liabilities (including interest) |
39.9 | 59.2 | 31.7 | 45.8 | 176.6 | |||||||||||||||
| Derivative financial instruments |
70.0 | 11.2 | — | — | 81.2 | |||||||||||||||
| Other financial liabilities |
65.5 | 25.5 | 0.5 | 26.9 | 118.4 | |||||||||||||||
| Total |
$2,213.3 | $581.5 | $2,207.3 | $129.1 | $5,131.2 | |||||||||||||||
24
Exhibit 99.2
BRP INC.
MANAGEMENT’S
DISCUSSION AND
ANALYSIS
FOR THE THREE- AND NINE-MONTH PERIODS
ENDED OCTOBER 31, 2022
Table of contents
| Glossary |
2 | |||
| Basis of Presentation |
3 | |||
| Forward-Looking Statements and Non-IFRS Measures |
3 | |||
| Business Overview |
5 | |||
| Reporting Segments |
5 | |||
| Factors Affecting the Company’s Results of Operations |
6 | |||
| Executive Summary |
9 | |||
| Retail Performance & Market Statistics |
11 | |||
| Results of Operations |
12 | |||
| Analysis of Results for the Third Quarter of Fiscal 2023 |
12 | |||
| Analysis of Segment Results for the Third Quarter of Fiscal 2023 |
14 | |||
| Geographical Trends for the Third Quarter of Fiscal 2023 |
15 | |||
| Analysis of Results for the nine-month period ended October 31, 2022 |
16 | |||
| Analysis of Segment Results for the nine-month period ended October 31, 2022 |
18 | |||
| Geographical Trends for the nine-month period ended October 31, 2022 |
19 | |||
| Foreign Exchange |
20 | |||
| Liquidity and Capital Resources |
21 | |||
| Contractual Obligations |
23 | |||
| Capital Resources |
24 | |||
| Consolidated Financial Position |
27 | |||
| Off-Balance Sheet Arrangements |
28 | |||
| Transaction Between Related Parties |
30 | |||
| Financial Instruments |
30 | |||
| Non-IFRS Measures and Reconciliation Tables |
32 | |||
| Reconciliation Tables |
33 | |||
| Summary of Consolidated Quarterly Results |
35 | |||
| Reconciliation Table for Consolidated Quarterly Results |
36 | |||
| Critical Accounting Estimates |
39 | |||
| Environmental, Social and Governance |
41 | |||
| Controls and Procedures |
42 | |||
| Risk Factors |
43 | |||
| Disclosure of Outstanding Shares |
43 | |||
| Additional Information |
43 | |||
| BRP Inc. | Management’s Discussion and Analysis | 1 |
Glossary
| Abbreviations | Description | Abbreviations | Description | |||
| 3WV |
Three-Wheeled Vehicles |
LIBOR |
London Interbank Offered Rate | |||
| ATV |
All-Terrain Vehicles |
NCIB |
Normal Course Issuer Bid | |||
| BPS |
Basis points |
MD&A |
Management’s Discussion & Analysis | |||
| DB |
Defined Benefits |
OEM |
Original Equipment Manufacturer | |||
| DC |
Defined Contribution |
ORV |
Off-Road Vehicles | |||
| CAPEX |
Capital Expenditure |
PA&A |
Parts, Accessories & Apparel | |||
| CGU |
Cash Generating Unit |
PP&E |
Property, Plant & Equipment | |||
| EBITDA |
Earnings Before Interest, Taxes, Depreciation & Amortization |
PWC |
Personal Watercraft | |||
| EPS |
Earnings Per Share |
R&D |
Research & development | |||
| ESG |
Environmental, Social and Governance |
SIB |
Substantial Issuer Bid | |||
| EURIBOR |
Euro Interbank Offered Rate |
SOFR |
Secured Overnight Financing Rate | |||
| G&A |
General & Administrative |
Term SOFR |
Defined as the forward-looking term rate based on SOFR plus a customary credit spread adjustment | |||
| IAS |
International Accounting Standards |
SSV |
Side-by-Side Vehicles | |||
| IFRS |
International Financial Reporting Standards |
Working Capital |
Current assets less current liabilities | |||
| International |
All region except United States & Canada |
| BRP Inc. | Management’s Discussion and Analysis | 2 |
Basis of Presentation
The following management’s discussion and analysis (“MD&A”) provides information concerning financial condition and results of operations of BRP Inc. (the “Company” or “BRP”) for the third quarter of the fiscal year ending January 31, 2023. This MD&A should be read in conjunction with the unaudited condensed consolidated financial statements for the three- and nine-month periods ended October 31, 2022. Some of the information included in this discussion and analysis contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from underlying forward-looking statements as a result of various factors, including those described in the “Forward-Looking Statements” section of this MD&A. This MD&A reflects information available to the Company as at November 29, 2022.
The unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) and in accordance with IAS 34 “Interim Financial Reporting”. All amounts presented are in Canadian dollars unless otherwise indicated. The Company’s fiscal year is the twelve-month period ending January 31. All references in this MD&A to “Fiscal 2023” are to the Company’s fiscal year ended January 31, 2023, and references to “Fiscal 2022” are to the Company’s fiscal year ended January 31, 2022 and references to “Fiscal 2021” are to the Company’s fiscal year ended January 31, 2021.
This MD&A, approved by the Board of Directors on November 29, 2022, is based on the Company’s unaudited condensed consolidated interim financial statements and accompanying notes thereto for the three- and nine-month periods ended October 31, 2022 and 2021.
Forward-Looking Statements and Non-IFRS Measures
Forward-Looking Statements
Certain statements in this MD&A about the Company’s current and future plans, prospects, expectations, anticipations, estimates and intentions, results, levels of activity, performance, objectives, targets, goals or achievements, priorities and strategies, financial position, market position, capabilities, competitive strengths, beliefs, the prospects and trends of the industries in which the Company operates, the expected growth in demand for products and services in the markets in which the Company competes, statements relating to the impact that the cybersecurity incident will have on its systems and operations, the Company’s ability to mitigate financial consequences due to the cybersecurity incident, and its lack of impact on its financial-year end guidance, research and product development activities, including projected design, characteristics, capacity or performance of future products and their expected scheduled entry to market expected financial requirements and the availability of capital resources and liquidities or any other future events or developments and other statements that are not historical facts constitute forward-looking statements within the meaning of applicable securities laws. The words “may”, “will”, “would”, “should”, “could”, “expects”, “forecasts”, “plans”, “intends”, “trends”, “indications”, “anticipates”, “believes”, “estimates”, “outlook”, “predicts”, “projects”, “likely” or “potential” or the negative or other variations of these words or other comparable words or phrases, are intended to identify forward-looking statements.
| BRP Inc. | Management’s Discussion and Analysis | 3 |
Forward-looking statements are presented for the purpose of assisting readers in understanding certain key elements of the Company’s current objectives, goals, targets, strategic priorities, expectations and plans, and in obtaining a better understanding of the Company’s business and anticipated operating environment. Readers are cautioned that such information may not be appropriate for other purposes; readers should not place undue reliance on forward-looking statements contained herein. Forward-looking statements, by their very nature, involve inherent risks and uncertainties and are based on a number of assumptions, both general and specific. The Company cautions that its assumptions may not materialize and that current economic conditions render such assumptions, although believed reasonable at the time they were made, subject to greater uncertainty. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results or performance of the Company or the industry to be materially different from the outlook or any future results or performance implied by such statements. In addition, many factors could cause the Company’s actual results, level of activity, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the risk factors discussed in greater detail under the heading “Risk Factors” of its Annual Information Form dated March 24, 2022.
The forward-looking statements contained in this MD&A are made as of the date of this MD&A, and the Company has no intention and undertakes no obligation to update or revise any forward-looking statements to reflect future events, changes in circumstances, or changes in beliefs, unless required by applicable securities regulations. In the event that the Company does update any forward-looking statements contained in this MD&A, no inference should be made that the Company will make additional updates with respect to that statement, related matters or any other forward-looking statement. The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement.
The Company made a number of economic, market and operational assumptions in preparing and making certain forward-looking statements contained in this MD&A, including the following: reasonable industry growth ranging from slightly down to up high-single digits, that is based on the assumption that the supply chain disruptions do not worsen; market share that will remain constant or moderately increase; stable global and North American economic conditions, a limited impact from the military hostilities in Ukraine and the ongoing global health crisis; main currencies in which the Company operates will remain at near current levels; inflation is expected to remain elevated from strong demand, supply shortages and high energy prices, and is expected to gradually decline as central banks gradually increase interest rates; there will be no significant changes in tax laws or free trade arrangements or treaties applicable to the Company; the Company’s margins, will remain at current levels; the supply base will remain able to support product development and planned production rates on commercially acceptable terms in a timely manner; the cybersecurity incident and its consequences will be adequately contained and will have limited impact on the planned wholesale; no new trade barriers will be imposed amongst jurisdictions in which the Company carries operations; the absence of unusually adverse weather conditions, especially in peak seasons. BRP cautions that its assumptions may not materialize and current economic conditions may render such assumptions, although believed reasonable at the time they were made, subject to greater uncertainty.
Non-IFRS Measures
This MD&A makes reference to certain non-IFRS measures. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company’s financial information reported under IFRS.
The Company defines and reconciles these measures in the “Non-IFRS Measures and Reconciliation Tables” section of this MD&A.
| BRP Inc. | Management’s Discussion and Analysis | 4 |
Business Overview
BRP is a global leader in the design, development, manufacturing, distribution and marketing of powersports and marine products. The Company is a diversified manufacturer of powersports and marine products, providing enthusiasts with a variety of exhilarating, stylish and powerful products for year-round use on a variety of terrains. The Company’s diversified portfolio of brands and products includes for Powersports: Can-Am ATVs, SSVs, 3WVs, Ski-Doo and Lynx snowmobiles, Sea-Doo PWCs and pontoons, as well as Rotax engines for karts and recreational aircraft. For Marine, the portfolio of brands and products includes Alumacraft and Quintrex boats, Manitou pontoons and Rotax engines for jet boats and outboard engine, with stealth technology. Additionally, the Company supports its line of products with a dedicated PA&A business.
The Company employs close to 20,000 people mainly in manufacturing and distribution sites in Mexico, Canada, Austria, the United States, Finland, Australia and Germany. The Company sells its products in over 120 countries. The products are sold directly through a network of approximately 2,800 dealers in 21 countries, as well as through approximately 170 distributors serving approximately 460 additional dealers.
Reporting Segments
BRP and its subsidiaries (the “Company”) design, develop, manufacture and sell powersports and marine products. The Company has two operating segments consisting of Powersports (Year-Round Products, Seasonal Products and PA&A and OEM engines) and Marine Products.
Powersports
Year-Round Products
Year-Round Products consist of BRP vehicles that are sold and used throughout the year in most climates and include ATVs, SSVs and 3WVs product lines. All products within the Year-Round Product category are sold under the Can-Am brand. Can-Am ATVs, SSVs and 3WVs all leverage BRP’s Rotax engines.
Seasonal Products
Seasonal products consist of BRP products that are mostly used in specific seasons. These products include snowmobiles, which are mainly used during the winter season with sales to dealers concentrated in the months of September to January. PWC and Sea-Doo pontoons, which are mainly used during the summer season, with sales to dealers concentrated in the months of January to April. All these products leverage BRP’s Rotax engines.
Parts, Accessories & Apparel and OEM engines
PA&A and Rotax engines consist of parts, accessories and apparel (referred to as “PA&A”), engines for karts and recreational aircraft and other services.
Marine
Marine consists of boats, pontoons, jet boat and outboard engines and related PA&A and other services. BRP competes in the boat product category with Alumacraft and Quintrex boats, Manitou pontoons and in the marine engine product category with the Rotax engines for jet boats and outboard engine with stealth technology.
| BRP Inc. | Management’s Discussion and Analysis | 5 |
The following table shows the percentage of total revenues for each segment:
| Proportion of Total Revenues (in percentages) |
Three-month periods ended | Nine-month periods ended | ||||||||||||||
|
October 31, 2022 |
October 31, 2021 |
October 31, 2022 |
October 31, 2021 |
|||||||||||||
| Year-Round Products |
47.2% | 46.4% | 51.3% | 49.3% | ||||||||||||
| Seasonal Products |
37.7% | 27.5% | 30.5% | 27.8% | ||||||||||||
| Powersports PA&A and OEM Engines |
11.0% | 17.9% | 12.9% | 15.8% | ||||||||||||
| Total Powersports |
95.9% | 91.8% | 94.7% | 92.9% | ||||||||||||
| Marine |
4.1% | 8.2% | 5.3% | 7.1% | ||||||||||||
| Total Revenues |
100.0% | 100.0% | 100.0% | 100.0% | ||||||||||||
Factors Affecting the Company’s Results of Operations
Revenues and Sales Program Costs
The Company’s revenues are primarily derived from the wholesale activities to dealers and distributors of the Company’s manufactured vehicles, including Year-Round Products, Seasonal Products, Powersports PA&A and OEM Engines, as well as Marine products. Revenue recognition normally occurs when products are shipped to dealers or distributors from the Company’s facilities.
In order to support the wholesale activities of the Company and the retail activities of dealers and distributors, the Company may provide support in the form of various sales programs consisting of cash and non-cash incentives. The cash incentives consist mainly of rebates given to dealers, distributors and consumers, volume discounts to dealers and distributors, free or extended coverage period under dealer and distributor inventory financing programs, and retail financing programs. The cost of these cash incentives is recorded as a reduction of revenues. The non-cash incentives mainly consist of extended warranty coverage or free PA&A. When an extended warranty coverage is given with the purchase of a product, a portion of the revenue recognized upon the sale of that product is deferred and recognized during the extended warranty coverage period. The cost of the free PA&A is recorded in cost of sales.
The support provided to dealers, distributors and consumers tends to increase when general economic conditions are difficult, when changing market conditions require the launch of new or more competitive programs, or when dealer and distributor inventory is above appropriate levels.
Under dealer and distributor inventory financing arrangements, the Company could be required to purchase repossessed new and unused products in certain cases of default by dealers or distributors. The cost of repossession tends to increase when dealers or distributors are facing challenging and prolonged difficult retail conditions and when their non-current inventory level is high. During the current fiscal year and previous fiscal year, the Company did not experience significant repossessions under its dealer and distributor inventory financing arrangements. Refer to the “Off-Balance Sheet Arrangements” section of this MD&A for more information on dealer and distributor inventory financing arrangements.
Commodity Costs
Approximately 75% of the Company’s cost of sales consists of material used in the manufacturing process. Therefore, the Company is exposed to the fluctuation of prices of certain raw materials such as aluminum, steel, plastic, resins, stainless steel, copper, rubber and certain rare earth metals. Additionally, the Company is exposed to fuel price fluctuations related to its procurement and distribution activities. The Company does not hedge its long-term exposure to such price fluctuations. Therefore, an increase in commodity prices could negatively impact the Company’s operating results if it is not able to transfer these cost increases to dealers, distributors or consumers.
| BRP Inc. | Management’s Discussion and Analysis | 6 |
Warranty Costs
The Company’s regular warranty generally covers periods ranging from six months to five years for most products. In certain circumstances, the Company provides extended warranty coverage as a result of sales programs, under certain commercial accounts, or as required by local regulations. During the warranty period, the Company reimburses dealers and distributors for the entire cost of repair or replacement performed on the products (mainly composed of parts or accessories provided by the Company and labour costs incurred by dealers or distributors). In addition, the Company sells in the normal course of business and provides under certain sales programs extended product warranties.
During its product development process, the Company ensures that high quality standards are maintained at each development stage of a new product. This includes the development of detailed product specifications, the evaluation of the quality of the supply chain and the manufacturing methods and detailed testing requirements over the development stage of the products. Additionally, product quality is ensured by quality inspections during and after the manufacturing process.
The Company records a regular warranty provision when products are sold. Management believes that, based on available information, the Company has adequate provisions to cover any future warranty claims on products sold. However, future claim amounts can differ significantly from provisions that are recorded in the condensed consolidated interim statements of financial position. For extended warranty, the claims are recorded in cost of sales as incurred.
Foreign Exchange
The Company’s revenues are reported in Canadian dollars but are mostly generated in U.S. dollars, Canadian dollars and euros. The Company’s revenues reported in Canadian dollars are to a lesser extent exposed to foreign exchange fluctuations with the Australian dollar, the Brazilian real, the Swedish krona, the Norwegian krone, the British pound, the New Zealand dollar, Mexican pesos and the Russian ruble. The costs incurred by the Company are mainly denominated in Canadian dollars, U.S. dollars and euros and to a lesser extent in Mexican pesos. Therefore, recorded revenues, gross profit and operating income in Canadian dollars are exposed to foreign exchange fluctuations. The Company’s facilities are located in different countries, which helps mitigate some of its foreign currency exposure.
As of October 31, 2022, the Company had an outstanding balance of U.S. $1,581.0 million ($2,156.6 million) under its U.S. $1,635.0 million ($2,230.3 million) term facility agreement (the “Term Facility”), which results in a gain or loss in net income when the U.S. dollar/Canadian dollar exchange rate at the end of the period varies from the opening period rate. Additionally, the Company’s interest expense on the Term Facility is exposed to U.S. dollar/Canadian dollar exchange rate fluctuations. The Company does not currently hedge the U.S. dollar/Canadian dollar exchange rate fluctuation exposures related to its Term Facility, and therefore, an increase in the value of the U.S. dollar against the Canadian dollar could negatively impact the Company’s net income.
For further detail relating to the Company’s exposure to foreign currency fluctuations, see “Financial Instruments – Foreign Exchange Risk” section of this MD&A.
| BRP Inc. | Management’s Discussion and Analysis | 7 |
Net Financing Costs (Financing Costs less Financing Income)
Net financing costs are incurred principally on long-term debt, defined benefit pension plan liabilities and revolving credit facilities. As at October 31, 2022, the Company’s long-term debt of $2,332.0 million was mainly comprised of the Term Facility, which bears interest at LIBOR plus 2.00% and Term SOFR plus 3.00%. The Company entered into interest rate cap contracts, which limit its exposure to interest rates increases.
Income Taxes
The Company is subject to federal, state and provincial income taxes in jurisdictions in which it conducts business. The Canadian income tax statutory rate was 26.5% for the three- and nine-month periods ended October 31, 2022. However, the Company’s effective consolidated tax rate is influenced by various factors, including the mix of accounting profits or losses before income tax among tax jurisdictions in which it operates and the foreign exchange gain or loss on the Term Facility. The Company expects to pay cash taxes in all tax jurisdictions for Fiscal 2023, except in the United States where the Company plans to utilize its tax attributes to offset taxable income or income tax payable.
Seasonality
The Company’s revenues and operating income experience substantial fluctuations from quarter to quarter. In general, wholesale sales of the Company’s products are highest in the period immediately preceding their respective season and during the said season of use. However, the mix of product sales may vary considerably, from time to time, as a result of changes in seasonal and geographic demand, the introduction of new products and models, and production scheduling for particular types of products. As a result, the Company’s financial results are likely to fluctuate significantly from period to period.
| BRP Inc. | Management’s Discussion and Analysis | 8 |
Executive Summary
Following the global coronavirus (“COVID-19”) pandemic and the resulting worldwide enacting emergency measures, the Company’s solid position was only strengthened as its products provide an attractive outdoor and social-distancing solution for new and existing powersports consumers. This increase in commercial activity, felt across multiple industries, heightened the pressure on the global supply chain network as demand grew stronger and, in turn, forced multiple market participants, including BRP, to innovate and find alternate ways to source materials, revise and adapt production schedules, pursue strategic pricing initiatives aimed at offsetting inflationary pressures and deliver units to its dealer network, faced with an unprecedented retail demand.
Despite these challenges, and the recent cybersecurity incident, the Company increased revenues during the third quarter of Fiscal 2023, notably by increasing its production output and the conversion rate of substantially completed units available for retail. The increase in revenues for the three and nine-month periods this fiscal year compared to Fiscal 2022 is explained by the strong consumer demand and supported by the additional available capacity such as the new Juarez-3 facility dedicated to SSV production. However, the deliveries of PWC and 3WV in the quarter occurred after the peak in the retail season and drove an increase in the dealer network inventory at the end of the third quarter.
Financial Highlights
| (in millions of Canadian dollars, except per share data and margin) |
Three-month periods ended | Nine-month periods ended | ||||||||||||||||||||||||||||||
|
October 31, 2022 |
October 31, 2021 |
Variance ($) |
Variance (%) |
October 31, 2022 |
October 31, 2021 |
Variance ($) |
Variance (%) |
|||||||||||||||||||||||||
| Income Statement |
||||||||||||||||||||||||||||||||
| Revenues |
$2,709.3 | $1,588.0 | $1,121.3 | 70.6% | $6,957.1 | $5,300.4 | $1,656.7 | 31.3% | ||||||||||||||||||||||||
| Gross Profit |
654.7 | 410.6 | 244.1 | 59.4% | 1,711.8 | 1,522.7 | 189.1 | 12.4% | ||||||||||||||||||||||||
| Gross Profit margin (%) |
24.2% | 25.9% | N/A | (170bps) | 24.6% | 28.7% | N/A | (410bps) | ||||||||||||||||||||||||
| Operating income |
384.8 | 185.5 | 199.3 | 107.4% | 930.2 | 840.4 | 89.8 | 10.7% | ||||||||||||||||||||||||
| Normalized EBITDA[1] |
487.9 | 251.7 | 236.2 | 93.8% | 1,178.3 | 1,045.7 | 132.6 | 12.7% | ||||||||||||||||||||||||
| Net income |
141.6 | 127.7 | 13.9 | 10.9% | 500.3 | 585.0 | (84.7 | ) | (14.5%) | |||||||||||||||||||||||
| Normalized net income[1] |
292.5 | 123.7 | 168.8 | 136.5% | 667.5 | 595.2 | 72.3 | 12.1% | ||||||||||||||||||||||||
| EPS - diluted |
1.76 | 1.53 | 0.23 | 15.0% | 6.15 | 6.81 | (0.66 | ) | (9.7%) | |||||||||||||||||||||||
| Normalized EPS – diluted [1] |
3.64 | 1.48 | 2.16 | 145.9% | 8.21 | 6.93 | 1.28 | 18.5% | ||||||||||||||||||||||||
[1] See “Non-IFRS Measures” section.
| BRP Inc. | Management’s Discussion and Analysis | 9 |
Significant transactions during the three-month period ended October 31, 2022
Acquisitions
On August 4, 2022, the Company completed the acquisition of 80% of the outstanding shares of Pinion GmbH (“Pinion”) for a consideration of €61.9 million ($81.4 million) paid in cash. Pinion is located in Denkendorf, Germany and designs, develops, assembles, and sells mechanical gearboxes for traditional and electric bicycles.
This acquisition is expected to enhance BRP’s expertise in electric powertrain technology for existing product lines and upcoming product introductions.
On October 5, 2022, the Company completed the acquisition of substantially all the assets related to the powersports business of Kongsberg Automotive ASA and its subsidiary Kongsberg Inc. located in Shawinigan, Quebec (“KA Shawinigan”) for a consideration of $127.8 million.
KA Shawinigan is a leading player in the development and manufacturing of electronic and mechatronic products and a long-standing supplier of BRP. This acquisition is in line with BRP’s product strategy, particularly as it relates to its electrification plan. It is expected to allow the Company to gain further expertise in mechatronics and bolster its innovation capabilities.
Following the acquisitions of Pinion and KA Shawinigan, the Company created a new Low Voltage & Human Assisted Group (“LVHA”). The creation of LVHA is intended to allow the Company to pursue its growth strategy with product categories that overlap recreational, urban mobility and services with low voltage and human assisted products. LVHA is not a reportable segment for the Company.
Recent events
On November 29, 2022, the Company’s Board of Directors authorized the renewal of its normal course issuer bid program which allows for the purchase for cancellation of up to approximately 3,519,398 million subordinate voting shares over the next twelve months, representing approximately 10% of the Company’s public float.
| BRP Inc. | Management’s Discussion and Analysis | 10 |
Retail Performance & Market Statistics
North American dealer inventories
As at October 31, 2022, North American dealer inventories for Powersports products increased by 217% compared to October 31, 2021. The increase is across all product lines and mainly due to a significantly low level of inventory in Fiscal 2022 combined with shipment of PWC and 3WC late into the season after retail peak due to supply chain disruptions.
North American dealer inventories for Powersports products as at October 31, 2022 were down 19% compared to October 31, 2019 which further highlights the relatively low level of inventory in the Company’s dealer network in Fiscal 2022, despite the increase observed when comparing Fiscal 2023 and Fiscal 2022 levels.
North American retail sales - for the Third Quarter of Fiscal 2023
The Company’s North American retail sales for Powersports products increased by 43%[1] for the three-month period ended October 31, 2022 compared to the three-month period ended October 31, 2021. The increase was mainly attributable to PWC and SSV.
| ✓ | North American Year-Round Products retail sales increased on a percentage basis in the high-twenties range compared to the three-month period ended October 31, 2021. In comparison, the Year-Round Products industry recorded an increase on a percentage basis in the low single-digits over the same period. |
| ✓ | North American Seasonal Products retail sales increased on a percentage basis in the high-seventies range compared to the three-month period ended October 31, 2021. In comparison, the Seasonal Products industry increased on a percentage basis in the low-teens range over the same period while the Company increased on a percentage basis in the low-sixties range when excluding pontoons. |
The Company’s North American retail sales for Marine products decreased by 47% compared to the three-month period ended October 31, 2021 as a result of lower product availability.
North American retail sales - for the nine-month period ended October 31, 2022
The Company’s North American retail sales for Powersports products increased by 1%[1] for the nine-month period ended October 31, 2022 compared to the nine-month period ended October 31, 2021, mainly due to limited product availability driven by supply chain disruptions.
| ✓ | North American Year-Round Products retail sales increased on a percentage basis in the low single-digits compared to the nine-month period ended October 31, 2021. In comparison, the Year-Round Products industry recorded a decrease on a percentage basis in the low-teens range over the same period. |
| ✓ | North American Seasonal Products retail sales decreased on a percentage basis in the low single-digits compared to the nine-month period ended October 31, 2021. In comparison, the Seasonal Products industry recorded a decrease on a percentage basis in the high single-digits over the same period while the Company decreased on a percentage basis in the high single-digits when excluding pontoons. |
The Company’s North American retail sales for Marine products decreased by 29% compared to the nine-month period ended October 31, 2021 as a result of lower product availability.
[1] Including Sea-Doo pontoons.
| BRP Inc. | Management’s Discussion and Analysis | 11 |
Results of Operations
Analysis of Results for the Third Quarter of Fiscal 2023
The following section provides an overview of the financial performance of the Company for the three-month period ended October 31, 2022 compared to the same period ended October 31, 2021.
| (in millions of Canadian dollars, except per share data and margin) | Three-month periods ended | |||||||||||||||
| October 31, 2022 |
October 31, 2021 |
Variance ($) | Variance (%) | |||||||||||||
| Income Statement |
||||||||||||||||
| Revenues |
$2,709.3 | $1,588.0 | $1,121.3 | 70.6% | ||||||||||||
| Gross Profit |
654.7 | 410.6 | 244.1 | 59.4% | ||||||||||||
| Gross Profit margin (%) |
24.2% | 25.9% | N/A | (170bps) | ||||||||||||
| Operating Expenses |
269.9 | 225.1 | 44.8 | 19.9% | ||||||||||||
| Normalized EBITDA[1] |
487.9 | 251.7 | 236.2 | 93.8% | ||||||||||||
| Net Financing Costs |
32.8 | 15.8 | 17.0 | 107.6% | ||||||||||||
| Income Taxes |
77.8 | 51.9 | 25.9 | 49.9% | ||||||||||||
| Net income |
141.6 | 127.7 | 13.9 | 10.9% | ||||||||||||
[1] See “Non-IFRS Measures” section
Revenues
The increase in revenue was primarily due to a higher wholesale volume of SSV, PWC, 3WV and snowmobile sold and the introduction of the Sea-Doo pontoon. The increase includes a favourable foreign exchange rate variation of $51 million.
Gross Profit
The increase in gross profit was primarily due to the favourable volume of SSV and PWC sold and a favourable pricing across all product lines. The decrease in gross profit margin percentage was attributable to higher logistics, commodities and labour costs due to inefficiencies related to supply chain disruptions, idle costs related to the cybersecurity incident and higher sales programs resulting from historical low levels in Fiscal 2022. The decrease was partially offset by higher volume and favourable pricing. The increase in gross profit includes a favourable foreign exchange rate variation of $29 million.
Operating Expenses
The following table provides a breakdown of the Company’s Operating Expenses for the three-month period ended October 31, 2022 compared to the three-month period ended October 31, 2021:
| (in millions of Canadian dollars) | Three-month periods ended | |||||||||||||||
| October 31, 2022 |
October 31, 2021 |
Variance ($) | Variance (%) | |||||||||||||
| Selling and marketing |
$113.3 | $97.8 | $15.5 | 15.8% | ||||||||||||
| Research and development |
80.6 | 70.6 | 10.0 | 14.2% | ||||||||||||
| General and administrative |
74.9 | 65.2 | 9.7 | 14.9% | ||||||||||||
| Other operating expenses (income) |
1.1 | (8.5) | 9.6 | NM[a] | ||||||||||||
| Operating Expenses |
$269.9 | $225.1 | $44.8 | 19.9% | ||||||||||||
[a] NM – Not Meaningful
The increase in operating expenses was mainly attributable to an increase in selling and marketing and R&D expenses to support future growth and from continued product investments and higher G&A expenses mainly for the modernization of the Company’s software infrastructure to support future growth.
| BRP Inc. | Management’s Discussion and Analysis | 12 |
Normalized EBITDA [1]
The normalized EBITDA [1] increase was primarily due to higher gross profit partially offset by higher operating expenses.
Net Financing Costs
The increase in net financing costs primarily resulted from higher interest expense on the Term Facility due to a higher average interest rate and a higher interest expense on revolving credit facilities as a result of a higher usage.
Income Taxes
The increase in income tax expense was primarily due to a higher operating income, partially offset by the tax and accounting treatment of the property, plant and equipment from Mexican operations. The effective income tax rate amounted to 35.5% for the three-month period ended October 31, 2022 compared to the 28.9% for the three-month period ended October 31, 2021. The increase resulted primarily from the tax and accounting treatment of the foreign exchange (gain) loss on the Term Facility. The increase was partially offset by the tax and accounting treatment of property, plant and equipment from Mexican operations and by the unrecognized tax benefits related to certain intangibles during the period ended October 31, 2021.
Net Income
The increase in net income was primarily due to a higher operating income, partially offset by an unfavourable foreign exchange rate variation impact on the U.S. denominated long-term debt.
[1] See “Non-IFRS Measures” section.
| BRP Inc. | Management’s Discussion and Analysis | 13 |
Analysis of Segment Results for the Third Quarter of Fiscal 2023
The following section provides an overview of the financial performance of the Company’s segments for the three-month period ended October 31, 2022 compared to the same period ended October 31, 2021. The inter-segment transactions are included in the analysis.
| Segment results (in millions of Canadian dollars) |
Three-month periods ended | Variance ($) | Variance (%) | |||||||||||||
| October 31, 2022 | October 31, 2021 | |||||||||||||||
| Revenues [1] |
||||||||||||||||
| Powersports |
||||||||||||||||
| Year-Round |
$1,279.8 | $736.3 | $543.5 | 73.8% | ||||||||||||
| Seasonal |
1,020.9 | 437.3 | 583.6 | 133.5% | ||||||||||||
| Powersports PA&A and OEM Engines |
298.0 | 283.9 | 14.1 | 5.0% | ||||||||||||
| Marine |
118.8 | 136.3 | (17.5) | (12.8% | ) | |||||||||||
| Gross profit |
||||||||||||||||
| Powersports |
648.8 | 390.0 | 258.8 | 66.4% | ||||||||||||
| As a percentage of revenues |
25.0% | 26.8% | N/A | (180bps | ) | |||||||||||
| Marine |
5.9 | 20.6 | (14.7) | (71.4% | ) | |||||||||||
| As a percentage of revenues |
5.0% | 15.1% | N/A | (1010bps | ) | |||||||||||
[1] Including inter-segment transactions.
Powersports
Revenues
Year-Round Products
The increase in revenues was due to a higher volume of SSV and 3WV sold. The higher volume of SSV sold was due to added capacity and improved supply chain. The increase in 3WV volume was the result of the late shipments of model year 2022 which are usually delivered during the second quarter. The increase includes a favourable foreign exchange rate variation of $47 million.
Seasonal Products
The increase in revenues was primarily attributable to a higher volume of PWC sold due to late shipments of model year 2022 which are usually delivered during the second quarter. The increase was also attributable to a higher volume of snowmobile sold and the introduction of the Sea-Doo pontoon.
Powersports PA&A and OEM Engines
The increase in revenues was driven by favourable pricing and the introduction of the Sea-Doo pontoon.
Gross Profit
The increase in gross profit was mainly attributable to the favourable volume of SSV and PWC sold and favourable pricing across all product lines. The decrease in the gross profit margin percentage was the result of higher logistics, commodities and labour costs due to inefficiencies relating to supply chain disruptions, as well as idle costs relating to the cybersecurity incident and higher sales programs, resulting from historical low levels in Fiscal 2022. The decrease was partially offset by higher volume and favourable pricing. The increase in gross profit includes a favourable foreign exchange rate variation of $30 million.
| BRP Inc. | Management’s Discussion and Analysis | 14 |
Marine
Revenues
The decrease in revenues was primarily due to a lower volume of boats sold due to supply chain disruptions and the cybersecurity incident which delayed the new product introductions, partially offset by favourable pricing and a favourable mix of boats sold. The decrease includes a favourable foreign exchange rate variation of $2 million.
Gross Profit
The gross profit decrease was primarily due to higher logistics, commodities and labour costs due to inefficiencies relating to supply chain disruptions, partially offset by favourable pricing.
Geographical Trends for the Third Quarter of Fiscal 2023
Revenues
| Revenues by geography (in millions of Canadian dollars) |
Three-month periods ended | Variance ($) | Variance (%) | |||||||||||||
| October 31, 2022 | October 31, 2021 | |||||||||||||||
| Revenues ($) |
||||||||||||||||
| United States |
$1,683.3 | $836.8 | 846.5 | 101.2% | ||||||||||||
| Canada |
441.9 | 294.7 | 147.2 | 49.9% | ||||||||||||
| International |
584.1 | 456.5 | 127.6 | 28.0% | ||||||||||||
| Total Revenues ($) |
2,709.3 | 1,588.0 | ||||||||||||||
| Revenues (%) |
||||||||||||||||
| United States |
62.1% | 52.7% | N/A | 940bps | ||||||||||||
| Canada |
16.3% | 18.6% | N/A | (230bps) | ||||||||||||
| International |
21.6% | 28.7% | N/A | (710bps) | ||||||||||||
| Total Revenues (%) |
100.0% | 100.0% | ||||||||||||||
United States
The increase in revenues from the United States was mainly attributable to a higher volume of Year-Round Products and Seasonal Products sold and favourable pricing across all product lines. The increase includes a favourable foreign exchange impact of $51 million.
Canada
The increase in revenues from Canada was mainly attributable to a higher volume of Year-Round Products and Seasonal Products sold.
International
The increase in revenues from International was mainly attributable to a higher volume of Year-Round Products and Seasonal Products sold.
| BRP Inc. | Management’s Discussion and Analysis | 15 |
Analysis of Results for the nine-month period ended October 31, 2022
The following section provides an overview of the Company’s financial performance for the nine-month period ended October 31, 2022 compared to the same period ended October 31, 2021.
| (in millions of Canadian dollars, except margin data) | Nine-month periods ended | |||||||||||||||
| October 31, 2022 |
October 31, 2021 |
Variance ($) | Variance (%) | |||||||||||||
| Income Statement |
||||||||||||||||
| Revenues |
$6,957.1 | $5,300.4 | $1,656.7 | 31.3% | ||||||||||||
| Gross Profit |
1,711.8 | 1,522.7 | 189.1 | 12.4% | ||||||||||||
| Gross Profit margin (%) |
24.6% | 28.7% | N/A | (410bps) | ||||||||||||
| Operating Expenses |
781.6 | 682.3 | 99.3 | 14.6% | ||||||||||||
| Normalized EBITDA[1] |
1,178.3 | 1,045.7 | 132.6 | 12.7% | ||||||||||||
| Net Financing Costs |
72.8 | 111.4 | (38.6 | ) | (34.6%) | |||||||||||
| Income Taxes |
208.5 | 202.9 | 5.6 | 2.8% | ||||||||||||
| Net income |
500.3 | 585.0 | (84.7 | ) | (14.5%) | |||||||||||
[1] See “Non-IFRS Measures” section
Revenues
The increase in revenue was primarily due to a higher volume of SSV, snowmobile, 3WV and PWC sold, the introduction of Sea-Doo pontoons and favourable pricing across all product lines. The increase includes a favourable foreign exchange rate variation of $34 million.
Gross Profit
The increase in gross profit was the result of a favourable volume of SSV, 3WV, snowmobile and PWC sold and favourable pricing, partially offset by higher logistics, commodities and labour costs due to inefficiencies relating to supply chain disruptions, as well as higher sales programs resulting from historical low levels in Fiscal 2022. The decrease in gross profit margin percentage was mainly attributable to higher logistics, commodities and labour costs, partially offset by favourable pricing. The increase in gross profit includes a favourable foreign exchange rate variation of $27 million.
Operating Expenses
The following table provides a breakdown of the Company’s Operating Expenses for the nine-month period ended October 31, 2022 compared to the nine-month period ended October 31, 2021:
| (in millions of Canadian dollars) | Nine-month periods ended | |||||||||||||||
| October 31, 2022 |
October 31, 2021 |
Variance ($) | Variance (%) | |||||||||||||
| Selling and marketing |
$316.0 | $293.3 | $22.7 | 7.7% | ||||||||||||
| Research and development |
246.7 | 204.7 | 42.0 | 20.5% | ||||||||||||
| General and administrative |
219.3 | 187.4 | 31.9 | 17.0% | ||||||||||||
| Other operating income |
(0.4) | (3.1) | 2.7 | NM[a] | ||||||||||||
| Operating Expenses |
$781.6 | $682.3 | $99.3 | 14.6% | ||||||||||||
[a] NM – Not Meaningful
The increase in operating expenses was mainly attributable to an increase in R&D expenses to support future growth, higher G&A expenses mainly related to the modernization of the Company’s software infrastructure to support future growth and higher selling and marketing expenses mainly attributable to continued product investments.
| BRP Inc. | Management’s Discussion and Analysis | 16 |
Normalized EBITDA [1]
The increase in normalized EBITDA [1] was primarily due to higher gross profit, partially offset by higher operating expenses.
Net Financing Costs
The decrease in net financing costs was primarily attributable to transaction costs incurred on the Term Facility following the amendment completed during the first quarter of Fiscal 2022, as well as the $21.3 million loss on the NCIB in Fiscal 2022 compared to the $1.8 million gain in the first quarter of Fiscal 2023. The gains and losses on the NCIB represent the difference between the share price used to establish the financial liability and the amount actually paid to repurchase shares during the regulatory restrictions or self-imposed blackout periods. The decrease was partially offset by higher interest expense on the Term Facility due to a higher average interest rate and a higher interest expense on revolving credit facilities due to a higher usage.
Income Taxes
The increase in income tax expense was primarily due to a higher operating income, partially offset by the tax and accounting treatment of the property, plant and equipment from Mexican operations. The effective income tax rate amounted to 29.4% for the nine-month period ended October 31, 2022 compared to the 25.8% for the nine-month period ended October 31, 2021. The increase resulted primarily from the tax and accounting treatment of the foreign exchange (gain) loss on the Term Facility, partially offset by the tax and accounting treatment of property, plant and equipment from Mexican operations.
Net Income
The decrease in net income was primarily due to the unfavourable impact of the foreign exchange rate variation on the U.S. denominated long-term debt, partially offset by a higher operating income and lower net financing costs.
[1] See “Non-IFRS Measures” section.
| BRP Inc. | Management’s Discussion and Analysis | 17 |
Analysis of Segment Results for the nine-month period ended October 31, 2022
The following section provides an overview of the financial performance of the Company’s segments for the nine-month period ended October 31, 2022 compared to the same period ended October 31, 2021. The inter-segment transactions are included in the analysis.
| Segment results (in millions of Canadian dollars) |
Nine-month period ended | Variance ($) | Variance (%) | |||||||||||||
| October 31, 2022 | October 31, 2021 | |||||||||||||||
| Revenues [1] |
||||||||||||||||
| Powersports |
||||||||||||||||
| Year-Round |
$3,572.3 | $2,614.4 | $957.9 | 36.6% | ||||||||||||
| Seasonal |
2,120.8 | 1,475.2 | 645.6 | 43.8% | ||||||||||||
| Powersports PA&A and OEM Engines |
899.1 | 833.2 | 65.9 | 7.9% | ||||||||||||
| Marine |
390.4 | 392.7 | (2.3 | ) | (0.6%) | |||||||||||
| Gross profit |
||||||||||||||||
| Powersports |
1,666.5 | 1,465.7 | 200.8 | 13.7% | ||||||||||||
| As a percentage of revenues |
25.3% | 29.8% | N/A | (450bps) | ||||||||||||
| Marine |
45.3 | 57.0 | (11.7 | ) | (20.5%) | |||||||||||
| As a percentage of revenues |
11.6% | 14.5% | N/A | (290bps) | ||||||||||||
[1] Including inter-segment transactions.
Powersports
Revenues
Year-Round Products
The increase in revenues from Year-Round Products was primarily attributable to a higher volume of SSV sold due to added capacity, a higher volume of 3WV sold and favourable pricing across all product lines. The increase includes a favourable foreign exchange rate variation of $51 million.
Seasonal Products
The increase in revenues from Seasonal Products is primarily attributable to a higher volume of snowmobiles sold due to late shipments of model year 2022 units completed in the first quarter of Fiscal 2023 caused by supply chain disruptions, the introduction of the Sea-Doo pontoon and a higher volume of PWC sold. The increase was also attributable to a favourable pricing of PWC and snowmobiles sold. The increase includes an unfavourable foreign exchange rate variation of $14 million.
Powersports PA&A and OEM Engines
The increase in revenues from Powersports PA&A and OEM Engines was mainly attributable to favourable pricing and the introduction of the Sea-Doo pontoon. The increase includes an unfavourable foreign exchange rate variation of $6 million.
Gross Profit
The increase in gross profit was the result of a favourable volume of SSV, 3WV, snowmobiles and PWC sold and a favourable pricing, partially offset by higher logistics, commodities and labour costs due to inefficiencies relating to supply chain disruptions, as well as higher sales programs resulting from historical low levels in Fiscal 2022. The decrease in gross profit margin percentage was mainly attributable to higher logistics, commodities and labour costs, partially offset by favourable pricing. The increase in gross profit includes a favourable foreign exchange rate variation of $29 million.
| BRP Inc. | Management’s Discussion and Analysis | 18 |
Marine
Revenues
The decrease in revenues from the Marine segment was mainly due to a lower volume of boats and PA&A sold in light of supply chain disruptions, partially offset by a favourable product mix of boats sold, as well as favourable pricing.
Gross Profit
The gross profit decrease was primarily due to higher logistics, commodities and labour costs due to inefficiencies relating to supply chain disruptions, partially offset by favourable pricing.
Geographical Trends for the nine-month period ended October 31, 2022
Revenues
| Revenues by geography (in millions of Canadian dollars) |
Nine-month periods ended |
Variance ($) | Variance (%) | |||||||||||||
| October 31, 2022 | October 31, 2021 | |||||||||||||||
| Revenues ($) |
||||||||||||||||
| United States |
$4,264.8 | $2,981.9 | $1,282.9 | 43.0% | ||||||||||||
| Canada |
1,077.9 | 864.8 | 213.1 | 24.6% | ||||||||||||
| International |
1,614.4 | 1,453.7 | 160.7 | 11.1% | ||||||||||||
| Total Revenues ($) |
$6,957.1 | $5,300.4 | ||||||||||||||
| Revenues (%) |
||||||||||||||||
| United States |
61.3% | 56.3% | N/A | 500bps | ||||||||||||
| Canada |
15.5% | 16.3% | N/A | (80bps) | ||||||||||||
| International |
23.2% | 27.4% | N/A | (420bps) | ||||||||||||
| Total Revenues (%) |
100.0% | 100.0% | ||||||||||||||
United States
The increase in revenues from the United States was primarily due to the favourable volume of Year-Round Products and Seasonal Products sold, as well as favourable pricing across all product lines. The increase includes a favourable foreign exchange impact of $110 million.
Canada
The increase in revenues from Canada was primarily due to a higher volume of Year-Round Products and Seasonal Products and a favourable pricing across all product lines, partially offset by higher sales programs.
International
The increase in revenues from International was primarily due to a higher volume of Year-Round Products and Seasonal Products, as well as a favourable pricing across all product lines. The increase includes an unfavourable foreign exchange impact of $76 million.
| BRP Inc. | Management’s Discussion and Analysis | 19 |
Foreign Exchange
The key average exchange rates used to translate foreign-denominated revenues and expenses, excluding any effect of the Company’s hedging program for the three- and nine-month periods ended October 31, 2022 were as follows:
|
Three-month periods ended |
Nine-month periods ended | |||||||||||||||
|
October 31, 2022 |
October 31, 2021 |
October 31, 2022 |
October 31, 2021 |
|||||||||||||
| U.S. dollars (CA$/US$) |
1.3314 | 1.2569 | 1.2950 | 1.2480 | ||||||||||||
| Euro (CA$/€) |
1.3255 | 1.4719 | 1.3562 | 1.4855 | ||||||||||||
The key period-end exchange rates used to translate foreign-denominated assets and liabilities were as follows:
|
October 31, 2022 |
|
January 31, 2022 |
||||||||||
| U.S. dollars (CA$/US$) |
1.3641 | 1.2696 | ||||||||||
| Euro (CA$/€) |
1.3482 | 1.4234 | ||||||||||
When comparing the operating income and the income before income tax for the three- and nine-month periods ended October 31, 2022 and 2021, the impact of foreign exchange fluctuations were as follows:
|
Foreign exchange (gain) loss |
||||||||
| (in millions of Canadian dollars) | Three-month period | Nine-month period | ||||||
| Revenues |
$(51.0) | $(34.0) | ||||||
| Cost of sales |
22.0 | 7.0 | ||||||
| Impact of foreign exchange fluctuations on gross profit |
(29.0) | (27.0) | ||||||
| Operating expenses |
6.6 | (0.6) | ||||||
| Impact of foreign exchange fluctuations on operating income |
(22.4) | (27.6) | ||||||
| Long-term debt |
142.5 | 207.5 | ||||||
| Net financing costs |
3.0 | 2.3 | ||||||
| Impact of foreign exchange fluctuations on income before income taxes |
$123.1 | $182.2 | ||||||
| BRP Inc. | Management’s Discussion and Analysis | 20 |
Liquidity and Capital Resources
Liquidity
The Company’s primary sources of cash consist of existing cash balances, operating activities and available borrowings under the Revolving Credit Facilities and Term Facility.
The Company’s primary use of cash is to fund operations, working capital requirements and capital expenditures in connection with product development and manufacturing infrastructure. The fluctuation of working capital requirements is primarily due to the seasonality of the Company’s production schedule and product shipments.
A summary of net cash flows by activity for the nine-month periods ended October 31, 2022 and 2021 is presented below:
| Nine-month periods ended | ||||||||
| (millions of Canadian dollars) |
October 31, 2022 |
October 31, 2021 |
||||||
| Net cash flows generated from operating activities |
$342.3 | $61.2 | ||||||
| Net cash flows used in investing activities |
(599.5) | (358.8) | ||||||
| Net cash flows generated from (used in) financing activities |
80.6 | (1,004.2) | ||||||
| Effect of exchange rate changes on cash and cash equivalents |
(29.3) | 10.4 | ||||||
| Net decrease in cash and cash equivalents |
(205.9) | (1,291.4) | ||||||
| Cash and cash equivalents at beginning of period |
265.8 | 1,325.7 | ||||||
| Cash and cash equivalents at end of period |
$59.9 | $34.3 | ||||||
| Free cash flow [1] |
$(54.2) | $(303.5) | ||||||
Net Cash Flows Generated from Operating Activities
A summary of cash flows from operating activities for the nine-month periods ended October 31, 2022 and 2021 is presented below:
| Nine-month periods ended | ||||||||
| (millions of Canadian dollars) | October 31, 2022 |
October 31, 2021 |
||||||
| Net income |
$500.3 | $585.0 | ||||||
| Non-cash and non-operating items |
650.3 | 469.9 | ||||||
| Changes in working capital |
(528.3) | (854.4) | ||||||
| Income taxes paid, net of refunds |
(280.0) | (139.3) | ||||||
| Net cash flows generated from operating activities |
$342.3 | $61.2 | ||||||
Net cash flows generated from operating activities totalled $342.3 million for the nine-month period ended October 31, 2022 compared to $61.2 million for the nine-month period ended October 31, 2021. The $281.1 million increase in net cash flows generated was mainly due to favourable changes in working capital. The favourable changes in working capital were primarily driven by higher provisions. These are attributable to higher sales programs resulting from historical low levels in Fiscal 2022. The increase was partially offset by higher income taxes paid, mainly due to a higher income taxes expense for Fiscal 2022.
[1] See “Non-IFRS Measures” section.
| BRP Inc. | Management’s Discussion and Analysis | 21 |
Net Cash Flows Used in Investing Activities
A summary of cash flows from investing activities for the nine-month periods ended October 31, 2022 and 2021 is presented below:
| Nine-month periods ended | ||||||||
| (millions of Canadian dollars) | October 31, 2022 |
October 31, 2021 |
||||||
| Additions to property, plant and equipment |
$(353.1) | $(319.9) | ||||||
| Additions to intangible assets |
(43.4) | (44.8) | ||||||
| Business combinations, net of acquired cash |
(208.8) | — | ||||||
| Other |
5.8 | 5.9 | ||||||
| Net cash flows used in investing activities |
$(599.5) | $(358.8) | ||||||
Net cash flows used in investing activities totalled $599.5 million for the nine-month period ended October 31, 2022 compared to $358.8 million for the nine-month period ended October 31, 2021. The $240.7 million increase was mainly attributable to the acquisition of Pinion and KA Shawinigan.
Net Cash Flows Generated from (Used in) Financing Activities
A summary of cash flows from financing activities for the nine-month periods ended October 31, 2022 and 2021 is presented below:
| Nine-month periods ended | ||||||||
| (millions of Canadian dollars) | October 31, 2022 |
October 31, 2021 |
||||||
| Increase in revolving credit facilities and bank overdraft |
$365.1 | $58.5 | ||||||
| Repurchase of subordinate voting shares |
(305.5) | (638.2) | ||||||
| Dividends paid |
(38.2) | (32.4) | ||||||
| Issuance of long-term debt |
244.5 | 410.0 | ||||||
| Repayment of long-term debt |
(94.8) | (774.1) | ||||||
| Other |
(90.5) | (28.0) | ||||||
| Net cash flows generated from (used in) financing activities |
$80.6 | $(1,004.2) | ||||||
Net cash flows generated from financing activities totalled $80.6 million for the nine-month period ended October 31, 2022 compared to net cash flows used in financing activities in the amount of $1,004.2 million for the nine-month period ended October 31, 2021. The $1,084.8 million increase in net cash flows generated was mainly attributable to a lower net repayment of debt, an increase in revolving credit facilities used and a lower amount invested to repurchase shares for cancelation under the Company’s NCIB in the nine-month period ended October 31, 2022.
| BRP Inc. | Management’s Discussion and Analysis | 22 |
Contractual Obligations
The following table summarizes the Company’s significant contractual obligations as at October 31, 2022:
| (millions of Canadian dollars) | Less than 1 year |
1-3 years | 4-5 years | More than 5 years |
Total amount |
|||||||||||||||
| Trade payables and accruals |
$1,858.4 | $— | $— | $— | $1,858.4 | |||||||||||||||
| Long-term debt (including interest) |
179.5 | 485.6 | 2,175.1 | 56.4 | 2,896.6 | |||||||||||||||
| Lease liabilities (including interest) |
39.9 | 59.2 | 31.7 | 45.8 | 176.6 | |||||||||||||||
| Derivative financial instruments |
70.0 | 11.2 | — | — | 81.2 | |||||||||||||||
| Other financial liabilities |
65.5 | 25.5 | 0.5 | 26.9 | 118.4 | |||||||||||||||
| Total |
$2,213.3 | $581.5 | $2,207.3 | $129.1 | $5,131.2 | |||||||||||||||
The Company enters into purchasing agreements with suppliers related to material used in production. These agreements are usually entered into before production begins and may specify a fixed or variable quantity of material to be purchased. Due to the uncertainty as to the amount and pricing of material that may be purchased, the Company is not able to determine with precision its commitments in connection with these supply agreements.
Management believes that the Company’s operating activities and available financing capacity will provide adequate sources of liquidity to meet its short-term and long-term needs.
| BRP Inc. | Management’s Discussion and Analysis | 23 |
Capital Resources
Revolving Credit Facilities
On February 16, 2022, the Company amended its $800.0 million revolving credit facilities to increase the availability to $1,100.0 million and replace LIBOR with the Secured Overnight Financing Rate (‘‘SOFR’’) as the benchmark interest rate. Subsequently, on June 10, 2022, the Company added an additional $400 million to its available commitment under its revolving credit facilities, increasing the total availability to $1,500.0 million. The pricing grid and other conditions remained unchanged for both increases.
The applicable interest rates vary depending on a leverage ratio. The leverage ratio is defined in the Revolving Credit Facilities agreement by the ratio of net debt to consolidated cash flows of the Company (the “Leverage ratio”). The applicable interest rates are as follows:
| Currency | Applicable Interest Rates | |
| U.S. dollars at either |
◾ Term SOFR plus 1.45% to 3.00% per annum; or ◾ U.S. Base Rate plus 0.45% to 2.00% per annum; or ◾ U.S. Prime Rate plus 0.45% to 2.00% per annum; | |
| Canadian dollars at either |
◾ Bankers’ Acceptance plus 1.45% to 3.00% per annum; or ◾ Canadian Prime Rate plus 0.45% to 2.00% per annum | |
| Euros |
◾ EURIBOR plus 1.45% to 3.00% per annum |
In addition, the Company incurs commitment fees of 0.25% to 0.40% per annum on the undrawn amount of the Revolving Credit Facilities.
As at October 31, 2022, the cost of borrowing under the Revolving Credit Facilities was as follows:
| Currency | Cost of Borrowing | |
| U.S. dollars at either |
◾ Term SOFR plus 1.70% per annum; or ◾ U.S. Base Rate plus 0.70% per annum; or ◾ U.S. Prime Rate plus 0.70% per annum; | |
| Canadian dollars at either |
◾ Bankers’ Acceptance plus 1.70% per annum; or ◾ Canadian Prime Rate plus 0.70% per annum | |
| Euros |
◾ EURIBOR plus 1.70% per annum |
As at October 31, 2022, the commitment fees on the undrawn amount of the Revolving Credit Facilities were 0.25% per annum.
Under certain conditions, the Company is required to maintain a minimum fixed charge coverage ratio in order to have full access to its Revolving Credit Facilities. Additionally, the total available borrowing under the Revolving Credit Facilities is subject to a borrowing base calculation representing 75% of the carrying amount of trade and other receivables plus 50% of the carrying amount of inventories.
As at October 31, 2022 and January 31, 2022, the Company had contracted the following indebtedness:
| (millions of Canadian dollars) |
October 31, 2022 |
January 31, 2022 |
||||||
| Revolving credit facilities and bank overdraft |
$363.1 | $— | ||||||
| Issued letters of credit |
30.8 | 20.6 | ||||||
| Outstanding letters of credit under other bank agreements |
5.5 | 4.5 | ||||||
| BRP Inc. | Management’s Discussion and Analysis | 24 |
Term Facility
On June 14, 2022, the Company entered into an incremental U.S. $100.0 million tranche under its Term Facility. This new tranche matures in June 2024 and, consistent with the existing tranche of the Term Facility, is exempt of financial covenants. The Company incurred transaction costs of $1.1 million, which have been incorporated in the carrying amount of this new tranche of the Term Facility and are amortized over its expected life using the effective interest rate method.
As at October 31, 2022, the cost of borrowing under the Term Loan was as follows:
| Loan | Cost of Borrowing | |
| Term Loan B-1 |
◾ 2.00% per annum, with a LIBOR floor of 0.00%; or ◾ U.S. Base Rate plus 1.00%; or ◾ U.S. Prime Rate plus 1.00% | |
| Term Loan B-2 |
◾ Term SOFR plus 3.00% per annum, with a Term SOFR floor of 0.5%; or ◾ U.S. Base Rate plus 2.00% |
Under the Term Facility, the cost of borrowing in U.S. Base Rate or U.S. Prime Rate cannot be lower than the cost of borrowing in LIBOR.
The Company is required to repay a minimum of 0.25% of the nominal amount each quarter. Consequently, the Company repaid an amount of U.S. $11.4 million ($14.9 million) during the nine-month period ended October 31, 2022. Also, the Company may be required to repay a portion of the Term Facility in the event that it has an excess cash position at the end of the fiscal year and its leverage ratio is above a certain threshold level. As at October 31, 2022, the Company was not required to repay any portion of the Term Facility under this requirement.
Austrian Term Loans
On May 5, 2022, the Company fully repaid the balance of its €55.0 million ($74.2 million) unsecured loan contracted under an Austrian government COVID-19 program in Fiscal 2021.
During the nine-month period ended October 31, 2022, the Company entered into unsecured loan agreements at favourable interest rates under an Austrian government program. This program supports research and development projects based on the Company’s incurred expenses in Austria. The term loans have a nominal amount of €86.8 million ($116.7 million) with an interest rate varying between 0.50% and 0.84% with maturity dates varying from June 2025 to June 2029
As at October 31, 2022, the Company had €138.8 million ($187.1 million) outstanding under its Austrian term loans bearing interest at a range between 0.80% and 2.70% and maturing between December 2022 and December 2030.
Lease Liabilities
As at October 31, 2022, the contractual obligations in relation to assets acquired under lease agreements amounted to $176.6 million.
Normal Course Issuer Bid Program
During the nine-month period ended October 31, 2022, the Company continued its repurchases under the NCIB that was announced and started during the fiscal year ended January 31, 2022 and repurchased for cancellation 463,950 subordinate voting shares for a total consideration of $47.2 million.
| BRP Inc. | Management’s Discussion and Analysis | 25 |
Substantial issuer bid offer
During the nine-month period ended October 31, 2022, the Company repurchased for cancellation 2,427,184 subordinate voting shares following the completion of its SIB for a total consideration of $250.0 million. Prior to the completion of the SIB, 570,779 multiple voting shares were converted into an equivalent number of subordinate voting shares. These converted shares were repurchased in the SIB. The Company incurred $1.0 million of fees and expenses related to the SIB, which were recorded in capital stock.
Dividend
On November 29, 2022, the Company’s Board of Directors declared a quarterly dividend of $0.16 per share for holders of its multiple voting shares and subordinate voting shares. The dividend will be paid on January 13, 2023 to shareholders of record at the close of business on December 30, 2022.
The Board of Directors has determined that this quarterly dividend is appropriate based on several relevant factors, including, without limitation, the Company’s results of operations, current and anticipated cash requirements and surplus, financial condition, contractual restrictions and financing agreement covenants (including restrictions in the Term Facility and the Revolving Credit Facilities or other material agreements) and solvency tests imposed by corporate law.
The payment of each quarterly dividend remains subject to the declaration of that dividend by the Board of Directors. The actual amount, the declaration date, the record date and the payment date of each quarterly dividend are subject to the discretion of the Board of Directors.
| BRP Inc. | Management’s Discussion and Analysis | 26 |
Consolidated Financial Position
The following table reflects the main variances that have occurred in the Company’s unaudited condensed consolidated interim statements of financial position between October 31, 2022 and January 31, 2022, the impact of the fluctuation of exchange rates on such variances, the related net variance (excluding the impact of the fluctuation of exchange rates on such variances) as well as explanations for the net variance:
| (millions of Canadian dollars) |
October 31, 2022 |
January 31, 2022 |
Variance | Exchange Rate Impact |
Net Variance |
Explanation of Net Variance | ||||||||||||||||
| Trade and other receivables |
$523.7 | $465.7 | $58.0 | $8.6 | $66.6 | Mostly explained by an increase of sales not financed by third-party financing service providers | ||||||||||||||||
| Inventories |
2,474.8 | 1,691.3 | 783.5 | (32.7) | 750.8 | Mostly explained by higher work in progress inventory due to supply chain disruptions, by higher raw material inventory for upcoming production and by higher finished product inventory for upcoming deliveries | ||||||||||||||||
| Property, plant and equipment |
1,614.0 | 1,441.9 | 172.1 | 8.9 | 181.0 | Mostly explained by continued capacity investments in property, plant and equipment | ||||||||||||||||
| Trade payables and accruals |
1,858.4 | 1,622.9 | 235.5 | (16.9) | 218.6 | Mostly explained by higher purchases for upcoming production, partially offset by adjusted payment terms to suppliers as part of a sourcing strategy amid the global supply chain disruptions | ||||||||||||||||
| Provisions |
600.6 | 414.3 | 186.3 | (21.5) | 164.8 | Mostly explained by higher sales programs resulting from historic low levels in Fiscal 2022 | ||||||||||||||||
| Deferred revenues |
249.3 | 355.2 | (105.9) | (15.5) | (121.4) | Mostly explained by the lower value of substantially completed units at dealers | ||||||||||||||||
| Long-term debt, including current portion |
2,332.0 | 2,040.5 | 291.5 | (141.7) | 149.8 | Mostly explained by the new U.S. $100.0 million Term B-2 tranche. | ||||||||||||||||
| Employee future benefit liabilities |
84.8 | 220.2 | (135.4) | 5.7 | (129.7) | Mostly explained by the 190bps increase in discount rate for the Canadian defined benefit obligations and 265bps for the foreign plans. | ||||||||||||||||
| BRP Inc. | Management’s Discussion and Analysis | 27 |
Off-Balance Sheet Arrangements
Dealer and Distributor Financing Arrangements
The Company, most of its independent dealers and some of its independent distributors are parties to agreements with third-party financing service providers. These agreements provide financing to facilitate the purchase of the Company’s products and improve the Company’s working capital by allowing an earlier collection of accounts receivable from dealers and distributors. Approximately three-quarters of the Company’s sales are made under such agreements. The parties listed above have agreements with Huntington Distribution Finance, Inc., Huntington Commercial Finance Canada Inc., Huntington Commercial Finance LLC and Huntington Commercial Finance New Zealand Ltd (collectively, “Huntington”), to provide financing facilities in North America, Australia and New Zealand, and with Wells Fargo Commercial Distribution Finance, Wells Fargo Bank International, Wells Fargo International Finance LLC and Wells Fargo International Finance (New Zealand) Limited (collectively “Wells Fargo”) for financing facilities in North America, Europe and Australia. The agreement between the Company and Huntington will expire on January 31, 2023. For most of the contracts with Wells Fargo, the maximum commitment period is up to November 29, 2023.
The total amount of financing provided to the Company’s independent dealers and distributors totalled $2,097.7 million and $5,862.9 million for the three- and nine-month periods ended October 31, 2022, compared to $1,042.1 million and $4,108.1 million for the three- and nine-month periods ended October 31, 2021. The outstanding financing between the Company’s independent dealers and distributors and third-party finance companies amounted to $2,262.4 million and $1,319.4 million as at October 31, 2022, and January 31, 2022, respectively.
The breakdown of outstanding amounts by country and local currency between the Company’s independent dealers and distributors with third-party finance companies were as follows, as at:
| (in millions) | Currency |
October 31, 2022 |
January 31, 2022 |
|||||||||
| Total outstanding |
CAD | $2,262 | $1,319 | |||||||||
| United States |
USD | $1,151 | $737 | |||||||||
| Canada |
CAD | $533 | $266 | |||||||||
| Europe |
EUR | €51 | €32 | |||||||||
| Australia and New Zealand |
AUD | $104 | $81 | |||||||||
The costs incurred by the Company under the dealers’ and distributors’ financing agreements totalled $26.9 million and $56.0 million for the three- and nine-month periods ended October 31, 2022 compared to $4.7 million and $17.6 million for the three- and nine-month periods ended October 31, 2021.
Under the dealer and distributor financing agreements, in the event of default, the Company may be required to purchase, from the finance companies, repossessed new and unused products at the total unpaid principal balance of the dealer or distributor to the finance companies. During Fiscal 2022, the Company renegotiated and regrouped some of its repurchase obligations for obligations that were held with the same third-party financing providers. Henceforth, the obligations are limited to the higher of U.S. $14.0 million ($19.1 million) or 15% of the calendar year twelve-month average amount of financing outstanding under the financing agreements and U.S. $25.0 million ($34.1 million) or 10% of the last twelve-month average amount of financing outstanding under the financing agreements ($139.6 million as at October 31, 2022).
The maximum amount subject to the Company’s obligation to purchase repossessed new and unused products from the finance companies was $159 million as at October 31, 2022 and $102 million as at January 31, 2022.
The Company did not incur significant losses related to new and unused products repossessed by the finance companies for the three- and nine-month periods ended October 31, 2022 and 2021.
| BRP Inc. | Management’s Discussion and Analysis | 28 |
Substantially completed units financing
During Fiscal 2022, the Company amended one of its dealer and distributor financing agreement to allow for the financing of the substantially completed units shipped at the Company’s dealers. The financing of those substantially completed units is conditional upon certain financial thresholds. Under the amended agreement, the Company’s dealers are required to respect certain thresholds regarding the substantially completed units shipped to them (“Thresholds”).
As at October 31, 2022, the total maximum outstanding obligations of all dealers for substantially completed units could not exceed U.S. $600 million ($818.5 million). This limit is set to be gradually reduced to reach U.S. $300.0 million ($409.2 million) as of January 31, 2024 and nil as of April 30, 2024. The maximum outstanding obligations of any individual dealer at any time for substantially completed units shall not exceed U.S. $18 million ($24.6 million). In addition, the maximum obligations by all dealers for seasonal products are limited to U.S. $50 million ($68.2 million) for snowmobiles as at April 30, 2023 and U.S. $225 million ($306.9 million) for PWC as at October 30, 2022.
In the event one of the Thresholds is exceeded, the Company would be required to reduce the outstanding dealers’ financing by assuming such financing until compliance with Thresholds. The substantially completed units stop being considered within the Thresholds limits when all the missing components are installed by the dealers. The Company was in compliance with the Thresholds as at October 31, 2022.
Consumer Financing Arrangements
The Company has contractual relationships with third-party financing companies in order to facilitate consumer credit for the purchase of its products in North America. The agreements generally allow the Company to offer a subsidized interest rate to consumers for a certain limited period under certain sales programs. In Canada, the Company has agreements with TD Financing Services and the Fédération des caisses Desjardins du Québec for such purposes. In the United States, the Company has agreements with Sheffield Financial, Citi Retail Services and Roadrunner Financial. Under these contracts, the Company’s financial obligations are related to the commitments made under certain sales programs.
| BRP Inc. | Management’s Discussion and Analysis | 29 |
Transaction Between Related Parties
Transactions with Bombardier Inc., a Company Related to Beaudier Group
Pursuant to the purchase agreement entered into in 2003 in connection with the acquisition of the recreational product business of Bombardier Inc., the Company committed to reimburse to Bombardier Inc. income taxes amounting to $23.1 million as at October 31, 2022 and $22.1 million as at January 31, 2022, respectively. The payments will begin when Bombardier Inc. starts making income tax payments in Canada and/or in the United States. The Company does not expect to make any payments to Bombardier Inc. in relation to that obligation for Fiscal 2023.
Financial Instruments
The Company’s financial instruments, divided into financial assets and financial liabilities, are measured at the end of each period at fair value or amortized costs using the effective interest method depending on their classification determined by IFRS. By nature, financial assets are exposed to credit risk whereas financial liabilities are exposed to liquidity risk. Additionally, the Company’s financial instruments and transactions could be denominated in foreign currency creating a foreign exchange exposure that could be mitigated by the use of derivative financial instruments. The Company is to a lesser extent exposed to interest risk associated to its Revolving Credit Facilities, Term Facility and Austrian term loans.
Foreign Exchange Risk
The elements reported in the consolidated statements of net income, in the consolidated statements of financial position and in the consolidated statements of cash flows presented in the Company’s unaudited condensed consolidated interim financial statements in Canadian dollars are significantly exposed to the fluctuation of exchange rates, mainly the Canadian dollar/U.S. dollar rate and the Canadian dollar/euro rate.
The Company’s cash inflows and outflows are mainly comprised of Canadian dollars, U.S. dollars and euros. The Company intends to maintain, as a result of its business transactions, a certain offset position on U.S. dollar and euro denominated cash inflows and outflows.
For some currencies over which the Company cannot achieve an offset through its recurring business transactions, mainly the U.S. dollar, the Australian dollar, the Swedish krona, the Norwegian krone and the British pound, the Company uses foreign exchange contracts according to the Company’s hedging strategy. Management periodically reviews the relevant hedging position and may hedge at any level within the authorized parameters of the policy, up to the maximum percentage allowed. Those contracts are accounted for under the cash flow hedge model covering highly probable forecasted sales in these currencies, and the gains or losses on those derivatives are recorded in net income only when the forecasted sales occur.
Finally, the Company reduces the exposure on its net income arising from the revaluation at period-end of monetary items denominated in a different functional currency by using foreign exchange contracts. Those contracts are recorded in net income at each period end in order to mitigate the gains or losses resulting from the revaluation at spot rate of these foreign-denominated liabilities.
While the Company’s operating income is protected, to a certain extent, from significant fluctuations of foreign exchange rates resulting from the application of the Company’s hedging strategy, the net income is significantly exposed to Canadian dollar/U.S. dollar rate fluctuations due to the U.S. dollar-denominated long-term debt. However, there is a monetary impact for the Company only to the extent the Term Facility is repaid.
| BRP Inc. | Management’s Discussion and Analysis | 30 |
Liquidity Risk
The Company is exposed to the risk of encountering difficulty in meeting obligations related to its financial liabilities. In order to manage its liquidity risk accurately, the Company continuously monitors its operating cash requirements taking into account the seasonality of the Company’s working capital needs, revenues and expenses. The Company believes the cash flows generated from operations combined with its cash on hand and the availability of funds under its credit facilities ensures its financial flexibility and mitigates its liquidity risk.
Credit Risk
The Company could be exposed, in the normal course of business, to the potential inability of dealers, distributors and other business partners to meet their contractual obligations on financial assets and on amounts guaranteed under dealer and distributor financing arrangements with Huntington and Wells Fargo.
The Company considers that its credit risk associated with its trade receivables and its limited responsibilities under the dealer and distributor financing agreements with Huntington and Wells Fargo does not represent a significant concentration of risk and loss due to the large number of dealers, distributors and other business partners and their dispersion across many geographic areas. Moreover, the Company mitigates such risk by doing business through its own distribution channels and by monitoring the creditworthiness of the dealers and distributors in the different geographic areas.
Interest Rate Risk
The Company is exposed to the variation of interest rates mainly resulting from the LIBOR and SOFR on its Term Facility. However, the Company entered into interest rate cap contracts, which limit its exposure to interest rate increase.
| BRP Inc. | Management’s Discussion and Analysis | 31 |
Non-IFRS Measures and Reconciliation Tables
The Company uses non-IFRS measures and ratio, including the following:
|
Non-IFRS measures |
Definition |
Reason for use | ||
| Normalized EBITDA |
Net income before financing costs, financing income, income tax expense (recovery), depreciation expense and normalized elements |
Assist management and investors in determining the financial performance of the Company’s operating activities on a consistent basis by excluding certain non-cash elements such as depreciation expense, impairment charge, foreign exchange gain or loss on the Company’s long-term debt denominated in U.S. dollars and foreign exchange gain or loss on certain of the Company’s lease liabilities. Other elements, such as restructuring, cybersecurity incident and wind-down costs, non-recurring gain or loss and acquisition-related costs, may be excluded from net income in the determination of Normalized EBITDA as they are considered not being reflective of the operational performance of the Company | ||
| Normalized net income |
Net income adjusted of normalized elements and related tax effect |
In addition to the financial performance of operating activities, these measures consider the impact of investing activities, financing activities and income taxes on the Company’s financial results | ||
| Normalized income tax expense |
Income tax expense adjusted to reflect the tax effect on normalized elements and to normalize specific tax elements | |||
| Normalized effective tax rate |
Based on Normalized net income before Normalized income tax expense | |||
| Normalized earnings per share – basic & diluted |
Calculated respectively by dividing the Normalized net income by the weighted average number of shares – basic and the weighted average number of shares – diluted |
|||
| Free cash flow |
Cash flows from operating activities less additions to PP&E and intangible assets |
Assist management and investors in assessing the Company’s liquidity generation abilities that could be available for shareholders’ distributions, debt repayment and business combination, after capital expenditures |
The Company believes non-IFRS measures are important supplemental measures of financial performance because they eliminate items that have less bearing on the Company’s financial performance and thus highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS measures. The Company also believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of companies, many of which present similar metrics when reporting their results. Management also uses non-IFRS measures in order to facilitate financial performance comparisons from period to period, prepare annual operating budgets, assess the Company’s ability to meet its future debt service, capital expenditure and working capital requirements and also as a component in the determination of the short-term incentive compensation for the Company’s employees. Because other companies may calculate these non-IFRS measures differently than the Company does, these metrics are not comparable to similarly titled measures reported by other companies.
| BRP Inc. | Management’s Discussion and Analysis | 32 |
Reconciliation Tables
The following table presents the reconciliation of Net income to Normalized net income [1] and Normalized EBITDA [1].
| Three-month periods ended |
Nine-month periods ended | |||||||||||||||
| (in millions of Canadian dollars) |
October 31, 2022 |
October 31, 2021 |
October 31, 2022 |
October 31, 2021 |
||||||||||||
| Net income |
$141.6 | $127.7 | $500.3 | $585.0 | ||||||||||||
| Normalized elements |
||||||||||||||||
| Foreign exchange (gain) loss on long-term debt and lease liabilities |
133.0 | (10.4) | 149.0 | (61.7) | ||||||||||||
| Cybersecurity incident costs [2] |
23.3 | — | 23.3 | — | ||||||||||||
| (Gain) loss on NCIB |
— | — | (1.8) | 21.3 | ||||||||||||
| Depreciation of intangible assets related to business combinations |
1.5 | 1.0 | 3.6 | 3.1 | ||||||||||||
| Transaction costs and other related expenses [3] |
2.1 | — | 2.1 | 5.8 | ||||||||||||
| Evinrude outboard engine wind-down [4] |
— | (0.7) | — | 1.7 | ||||||||||||
| Restructuring and related costs [5] |
0.8 | — | 0.8 | (0.1) | ||||||||||||
| Transaction costs on long-term debt [6] |
— | — | — | 44.3 | ||||||||||||
| Other elements |
— | 0.1 | 1.1 | 2.9 | ||||||||||||
| Income tax adjustment [1] [7] |
(9.8) | 6.0 | (10.9) | (7.1) | ||||||||||||
| Normalized net income [1] |
292.5 | 123.7 | 667.5 | 595.2 | ||||||||||||
| Normalized income tax expense |
87.6 | 45.9 | 219.4 | 210.0 | ||||||||||||
| Financing costs adjusted |
33.3 | 16.4 | 77.4 | 49.4 | ||||||||||||
| Financing income adjusted |
(0.3) | (0.7) | (2.8) | (3.5) | ||||||||||||
| Depreciation expense adjusted |
74.8 | 66.4 | 216.8 | 194.6 | ||||||||||||
| Normalized EBITDA [1] |
$487.9 | $251.7 | $1,178.3 | $1,045.7 | ||||||||||||
| [1] | See “Non-IFRS Measures” section. |
| [2] | During Fiscal 2023, the Company incurred costs related to a cybersecurity incident. These costs are mainly comprised of recovery costs, idle costs such as direct labor during shutdown period, etc. |
| [3] | Costs related to business combinations. |
| [4] | The Company incurred costs related to the wind-down of the outboard engine production such as, but not limited to, idle costs and other exit costs. |
| [5] | The Company is involved, from time to time, in restructuring and reorganization activities in order to gain flexibility and improve efficiency. The costs related to these activities are mainly composed of severance costs and retention salaries. |
| [6] | During Fiscal 2022, the Company incurred a prepayment premium of $15.1 million and derecognized unamortized transaction costs of $29.2 million related to the full repayment of its outstanding U.S. $597.0 million Term Loan B-2. |
| [7] | Income tax adjustment is related to the income tax on Normalized elements subject to tax and for which income tax has been recognized, adjustment related to the impact of foreign currency translation from Mexican operations, as well as the unrecognized tax benefits related to Evinrude outboard engine wind-down in Fiscal 2021. |
The following table presents the reconciliation of Net Cash Flows from Operating Activities to Free Cash Flow [1].
| (millions of Canadian dollars) | Nine-month periods ended | |||||||
|
October 31, 2022 |
October 31, 2021 |
|||||||
| Net cash flows generated from operating activities |
$342.3 | $61.2 | ||||||
| Additions to property, plant and equipment |
353.1 | 319.9 | ||||||
| Additions to intangible assets |
43.4 | 44.8 | ||||||
| Free cash flow [1] |
$(54.2) | $(303.5 | ) | |||||
[1] See “Non-IFRS Measures” section.
| BRP Inc. | Management’s Discussion and Analysis | 33 |
The following table presents the reconciliation of items as included in the Normalized net income[1] and Normalized EBITDA [1] compared to respective IFRS measures as well as the Normalized EPS – basic and diluted [1] calculation.
| (millions of Canadian dollars, except per share data) | Three-month periods ended | Nine-month periods ended | ||||||||||||||
|
October 31, 2022 |
October 31, 2021 |
October 31, 2022 |
October 31, 2021 |
|||||||||||||
| Depreciation expense reconciliation |
||||||||||||||||
| Depreciation expense |
$76.3 | $67.4 | $220.4 | $199.1 | ||||||||||||
| Depreciation of intangible assets related to business combinations |
1.5 | 1.0 | 3.6 | 3.1 | ||||||||||||
| Evinrude outboard engine wind-down [2] |
— | — | — | 1.4 | ||||||||||||
| Depreciation expense adjusted |
$74.8 | $66.4 | $216.8 | $194.6 | ||||||||||||
| Income tax expense reconciliation |
||||||||||||||||
| Income tax expense |
$77.8 | $51.9 | $208.5 | $202.9 | ||||||||||||
| Income tax adjustment [3] |
(9.8) | 6.0 | (10.9) | (7.1) | ||||||||||||
| Normalized income tax expense [1] |
$87.6 | $45.9 | $219.4 | $210.0 | ||||||||||||
| Financing costs reconciliation |
||||||||||||||||
| Financing costs |
$33.1 | $16.5 | $77.4 | $114.9 | ||||||||||||
| Transaction costs on long-term debt [4] |
— | — | — | 44.3 | ||||||||||||
| Loss on NCIB |
— | — | — | 21.3 | ||||||||||||
| Other |
(0.2) | 0.1 | — | (0.1) | ||||||||||||
| Financing costs adjusted |
$33.3 | $16.4 | $77.4 | $49.4 | ||||||||||||
| Financing income reconciliation |
||||||||||||||||
| Financing income |
$(0.3) | $(0.7) | $(4.6) | $(3.5) | ||||||||||||
| Gain on NCIB |
— | — | (1.8) | — | ||||||||||||
| Financing income adjusted |
$(0.3) | $(0.7) | $(2.8) | $(3.5) | ||||||||||||
| Normalized EPS - basic [1] calculation |
||||||||||||||||
| Normalized net income [1] |
$292.5 | $123.7 | $667.5 | $595.2 | ||||||||||||
| Non-controlling interests |
0.4 | 0.1 | 1.7 | 0.5 | ||||||||||||
| Weighted average number of shares - basic |
78,735,106 | 81,168,487 | 79,573,969 | 83,312,905 | ||||||||||||
| Normalized EPS - basic [1] |
$3.71 | $1.52 | $8.37 | $7.14 | ||||||||||||
| Normalized EPS - diluted [1] calculation |
||||||||||||||||
| Normalized net income [1] |
$292.5 | $123.7 | $667.5 | $595.2 | ||||||||||||
| Non-controlling interests |
0.4 | 0.1 | 1.7 | 0.5 | ||||||||||||
| Weighted average number of shares - Diluted |
80,253,434 | 83,525,890 | 81,137,287 | 85,791,361 | ||||||||||||
| Normalized EPS - diluted [1] |
$3.64 | $1.48 | $8.21 | $6.93 | ||||||||||||
| [1] | See “Non-IFRS Measures” section. |
| [2] | During Fiscal 2022, the Company incurred costs related to the wind-down of the outboard engine production such as, but not limited to, idle costs and other exit costs. |
| [3] | Income tax adjustment is related to the income tax on Normalized elements subject to tax and for which income tax has been recognized, adjustment related to the impact of foreign currency translation from Mexican operations, as well as the unrecognized tax benefits related to Evinrude outboard engine wind-down in Fiscal 2021. |
| [4] | During Fiscal 2022, the Company incurred a prepayment premium of $15.1 million and derecognized unamortized transaction costs of $29.2 million related to the full repayment of its outstanding U.S. $597.0 million Term Loan B-2. |
| BRP Inc. | Management’s Discussion and Analysis | 34 |
Summary of Consolidated Quarterly Results
| Three-month periods ended | ||||||||||||||||||||||||||||||||
| October | July | April | January | October | July | April | January | |||||||||||||||||||||||||
| 31, | 31, | 30, | 31, | 31, | 31, | 30, | 31, | |||||||||||||||||||||||||
| 2022 | 2022 | 2022 | 2022 | 2021 | 2021 | 2021 | 2021 | |||||||||||||||||||||||||
| (millions of Canadian dollars, except per share and gross profit data) |
Fiscal 2023 |
Fiscal 2023 |
Fiscal 2023 |
Fiscal 2022 |
Fiscal 2022 |
Fiscal 2022 |
Fiscal 2022 |
Fiscal 2021 |
||||||||||||||||||||||||
| Revenues by category |
||||||||||||||||||||||||||||||||
| Powersports |
||||||||||||||||||||||||||||||||
| Year-Round Products |
$1,279.8 | $1,358.1 | $934.4 | $853.1 | $736.3 | $955.6 | $922.5 | $759.7 | ||||||||||||||||||||||||
| Seasonal Products |
1,020.9 | 691.2 | 408.7 | 1,048.9 | 437.3 | 574.5 | 463.4 | 671.4 | ||||||||||||||||||||||||
| Powersports PA&A and OEM Engines |
297.5 | 257.3 | 343.5 | 310.6 | 283.7 | 248.6 | 300.7 | 256.8 | ||||||||||||||||||||||||
| Marine |
111.1 | 131.9 | 122.7 | 134.9 | 130.7 | 125.1 | 122.0 | 127.2 | ||||||||||||||||||||||||
| Total Revenues |
2,709.3 | 2,438.5 | 1,809.3 | 2,347.5 | 1,588.0 | 1,903.8 | 1,808.6 | 1,815.1 | ||||||||||||||||||||||||
| Gross profit |
654.7 | 602.7 | 454.4 | 609.5 | 410.6 | 570.1 | 542.0 | 501.9 | ||||||||||||||||||||||||
| As a percentage of revenues |
24.2% | 24.7% | 25.1% | 26.0% | 25.9% | 29.9% | 30.0% | 27.7% | ||||||||||||||||||||||||
| Net income |
141.6 | 237.7 | 121.0 | 209.6 | 127.7 | 212.9 | 244.4 | 264.2 | ||||||||||||||||||||||||
| Normalized EBITDA [1] |
487.9 | 418.3 | 272.1 | 416.4 | 251.7 | 415.0 | 379.0 | 313.1 | ||||||||||||||||||||||||
| Normalized net income [1] |
292.5 | 237.9 | 137.1 | 251.3 | 123.7 | 249.5 | 222.0 | 162.8 | ||||||||||||||||||||||||
| Basic EPS |
1.79 | 3.00 | 1.49 | 2.55 | 1.57 | 2.54 | 2.87 | 3.02 | ||||||||||||||||||||||||
| Diluted EPS |
1.76 | 2.94 | 1.46 | 2.50 | 1.53 | 2.46 | 2.79 | 2.95 | ||||||||||||||||||||||||
| Normalized basic EPS [1] |
3.71 | 3.00 | 1.69 | 3.06 | 1.52 | 2.97 | 2.61 | 1.86 | ||||||||||||||||||||||||
| Normalized diluted EPS [1] |
$3.64 | $2.94 | $1.66 | $3.00 | $1.48 | $2.89 | $2.53 | $1.82 | ||||||||||||||||||||||||
[1] See “Non-IFRS Measures” section.
| BRP Inc. | Management’s Discussion and Analysis | 35 |
Reconciliation Table for Consolidated Quarterly Results
| Three-month periods ended | ||||||||||||||||||||||||||||||||
| October | July | April | January | October | July | April | January | |||||||||||||||||||||||||
| 31, | 31, | 30, | 31, | 31, | 31, | 30, | 31, | |||||||||||||||||||||||||
| 2022 | 2022 | 2022 | 2022 | 2021 | 2021 | 2021 | 2021 | |||||||||||||||||||||||||
| (millions of Canadian dollars) | Fiscal 2023 |
Fiscal 2023 |
Fiscal 2023 |
Fiscal 2022 |
Fiscal 2022 |
Fiscal 2022 |
Fiscal 2022 |
Fiscal 2021 |
||||||||||||||||||||||||
| Net income |
$141.6 | $237.7 | $121.0 | $209.6 | $127.7 | $212.9 | $244.4 | $264.2 | ||||||||||||||||||||||||
| Normalized elements |
||||||||||||||||||||||||||||||||
| Foreign exchange (gain) loss on long-term debt and lease liabilities |
133.0 | (0.1) | 16.1 | 48.4 | (10.4) | 27.3 | (78.6) | (103.0) | ||||||||||||||||||||||||
| Transaction costs on long-term debt [1] |
— | — | — | — | — | — | 44.3 | — | ||||||||||||||||||||||||
| Transaction costs and other related expenses [2] |
2.1 | — | — | — | — | 5.6 | 0.2 | 0.2 | ||||||||||||||||||||||||
| (Gain) loss on NCIB |
— | — | (1.8) | — | — | — | 21.3 | — | ||||||||||||||||||||||||
| Evinrude outboard engine wind-down [3] |
— | — | — | (1.3) | (0.7) | 1.6 | 0.7 | 2.0 | ||||||||||||||||||||||||
| Depreciation of intangible assets related to business combinations |
1.5 | 1.0 | 1.1 | 1.0 | 1.0 | 1.0 | 1.1 | 1.1 | ||||||||||||||||||||||||
| Restructuring and related costs (reversal) [4] |
0.8 | — | — | — | — | — | (0.1) | — | ||||||||||||||||||||||||
| Gain on lease termination [5] |
— | — | — | (8.7) | — | — | — | — | ||||||||||||||||||||||||
| COVID-19 pandemic impact [6] |
— | — | — | — | — | — | — | (1.7) | ||||||||||||||||||||||||
| Cybersecurity incident costs [7] |
23.3 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Other elements |
— | (0.2) | 1.3 | 1.1 | 0.1 | 2.9 | — | — | ||||||||||||||||||||||||
| Income tax adjustment [8] |
(9.8) | (0.5) | (0.6) | 1.2 | 6.0 | (1.8) | (11.3) | — | ||||||||||||||||||||||||
| Normalized net income [9] |
292.5 | 237.9 | 137.1 | 251.3 | 123.7 | 249.5 | 222.0 | 162.8 | ||||||||||||||||||||||||
| Normalized income tax expense [9] |
87.6 | 82.5 | 49.3 | 77.9 | 45.9 | 87.1 | 77.0 | 60.7 | ||||||||||||||||||||||||
| Financing costs adjusted [9] |
33.3 | 27.6 | 16.5 | 14.0 | 16.4 | 15.8 | 17.1 | 26.2 | ||||||||||||||||||||||||
| Financing income adjusted [9] |
(0.3) | (1.5) | (1.0) | (0.3) | (0.7) | (1.6) | (1.2) | (2.7) | ||||||||||||||||||||||||
| Depreciation expense adjusted [9] |
74.8 | 71.8 | 70.2 | 73.5 | 66.4 | 64.2 | 64.1 | 66.1 | ||||||||||||||||||||||||
| Normalized EBITDA [9] |
$487.9 | $418.3 | $272.1 | $416.4 | $251.7 | $415.0 | $379.0 | $313.1 | ||||||||||||||||||||||||
| [1] | During Fiscal 2022, the Company incurred a prepayment premium of $15.1 million and derecognized unamortized transaction costs of $29.2 million related to the full repayment of its outstanding U.S. $597.0 million Term Loan B-2. |
| [2] | Costs related to business combinations. |
| [3] | The Company incurred costs related to the wind-down of the outboard engine production such as, but not limited to, retail sales incentives, restructuring costs, idle costs and other exit costs. |
| [4] | The Company is involved, from time to time, in restructuring and reorganization activities in order to gain flexibility and improve efficiency. The costs related to these activities are mainly composed of severance costs and retention salaries. |
| [5] | During Fiscal 2022, the Company acquired its two leased facilities in Mexico. The derecognition of related right-of-use assets and corresponding lease liabilities generated a $8.7 million gain on lease termination. |
| [6] | Incremental costs associated with the COVID-19 pandemic such as, but not limited to, labour cost related to furloughs. |
| [7] | During Fiscal 2023, the Company incurred costs related to a cybersecurity incident. These costs are mainly comprised of idle costs and recovery costs. |
| [8] | Income tax adjustment is related to the income tax on Normalized elements subject to tax and for which income tax has been recognized, adjustment related to the impact of foreign currency translation from Mexican operations, as well as the unrecognized tax benefits related to Evinrude outboard engine wind-down in Fiscal 2021. |
| [9] | See “Non-IFRS Measures” section. |
| BRP Inc. | Management’s Discussion and Analysis | 36 |
Selected Consolidated Financial Information
The selected consolidated financial information set out below for the three- and nine-month periods ended October 31, 2022 and 2021, has been determined based on the unaudited condensed consolidated interim financial statements and related notes approved on November 29, 2022.
Net Income Data
| (in millions of Canadian dollars) | Three-month periods ended | Nine-month periods ended | ||||||||||||||
|
October 31, 2022 |
October 31, 2021 |
October 31, 2022 |
October 31, 2021 |
|||||||||||||
| Revenues by category |
||||||||||||||||
| Powersports |
||||||||||||||||
| Year-Round Products |
$1,279.8 | $736.3 | $3,572.3 | $2,614.4 | ||||||||||||
| Seasonal Products |
1,020.9 | 437.3 | 2,120.8 | 1,475.2 | ||||||||||||
| Powersports PA&A and OEM Engines |
297.5 | 283.7 | 898.3 | 832.8 | ||||||||||||
| Marine |
111.1 | 130.7 | 365.7 | 378.0 | ||||||||||||
| Total Revenues |
2,709.3 | 1,588.0 | 6,957.1 | 5,300.4 | ||||||||||||
| Cost of sales |
2,054.6 | 1,177.4 | 5,245.3 | 3,777.7 | ||||||||||||
| Gross profit |
654.7 | 410.6 | 1,711.8 | 1,522.7 | ||||||||||||
| As a percentage of revenues |
24.2 | % | 25.9 | % | 24.6 | % | 28.7 | % | ||||||||
| Operating expenses |
||||||||||||||||
| Selling and marketing |
113.3 | 97.8 | 316.0 | 293.3 | ||||||||||||
| Research and development |
80.6 | 70.6 | 246.7 | 204.7 | ||||||||||||
| General and administrative |
74.9 | 65.2 | 219.3 | 187.4 | ||||||||||||
| Other operating income |
1.1 | (8.5 | ) | (0.4 | ) | (3.1 | ) | |||||||||
| Total operating expenses |
269.9 | 225.1 | 781.6 | 682.3 | ||||||||||||
| Operating income |
384.8 | 185.5 | 930.2 | 840.4 | ||||||||||||
| Net financing costs |
32.8 | 15.8 | 72.8 | 111.4 | ||||||||||||
| Foreign exchange (gain) loss on long-term debt |
132.6 | (9.9 | ) | 148.6 | (58.9 | ) | ||||||||||
| Income before income taxes |
219.4 | 179.6 | 708.8 | 787.9 | ||||||||||||
| Income tax expense |
77.8 | 51.9 | 208.5 | 202.9 | ||||||||||||
| Net income |
$141.6 | $127.7 | $500.3 | $585.0 | ||||||||||||
| Attributable to shareholders |
$141.2 | $127.6 | $498.6 | $584.5 | ||||||||||||
| Attributable to non-controlling interest |
$0.4 | $0.1 | $1.7 | $0.5 | ||||||||||||
| Normalized EBITDA [1] |
$487.9 | $251.7 | $1,178.3 | $1,045.7 | ||||||||||||
| Normalized net income [1] |
$292.5 | $123.7 | $667.5 | $595.2 | ||||||||||||
[1] See “Non-IFRS Measures” section.
| BRP Inc. | Management’s Discussion and Analysis | 37 |
Other Financial Data
| (in millions of Canadian dollars, except per share data) | Three-month periods ended | Nine-month periods ended | ||||||||||||||
|
October 31, 2022 |
October 31, 2021 |
October 31, 2022 |
October 31, 2021 |
|||||||||||||
| Weighted average number of shares – basic |
78,735,106 | 81,168,487 | 79,573,969 | 83,312,905 | ||||||||||||
| Weighted average number of shares – diluted |
80,253,434 | 83,525,890 | 81,137,287 | 85,791,361 | ||||||||||||
| EPS - basic |
$1.79 | $1.57 | $6.27 | $7.02 | ||||||||||||
| EPS - diluted |
1.76 | 1.53 | 6.15 | 6.81 | ||||||||||||
| Normalized EPS – basic [1] |
3.71 | 1.52 | 8.37 | 7.14 | ||||||||||||
| Normalized EPS – diluted [1] |
3.64 | 1.48 | 8.21 | 6.93 | ||||||||||||
| Declared dividends per share |
$0.16 | $0.13 | $0.48 | $0.39 | ||||||||||||
[1] See “Non-IFRS Measures” section.
Financial Position data
| As at (in millions of Canadian dollars) |
October 31, 2022 |
January 31, 2022 |
||||||
| Cash and cash equivalents |
$59.9 | $265.8 | ||||||
| Working capital |
135.5 | 48.7 | ||||||
| Property, plant and equipment |
1,614.0 | 1,441.9 | ||||||
| Total assets |
6,151.0 | 5,030.9 | ||||||
| Revolving credit facilities and bank overdraft |
363.1 | — | ||||||
| Total non-current financial liabilities |
2,469.7 | 2,088.9 | ||||||
| Total liabilities |
5,981.2 | 5,163.7 | ||||||
| Shareholders equity (deficit) |
169.8 | (132.8) | ||||||
| Total debt |
2,332.0 | 2,040.5 | ||||||
| BRP Inc. | Management’s Discussion and Analysis | 38 |
Critical Accounting Estimates
Significant Estimates and Judgments
The preparation of the unaudited condensed consolidated financial statements in accordance with the Company’s accounting policies requires management to make estimates and judgments that can affect the reported amounts of assets and liabilities, related amounts of revenues and expenses, other comprehensive income and disclosures made.
The Company’s best estimates are based on the information, facts and circumstances available at the time estimates are made. Management uses historical experience and information, general economic conditions and trends, as well as assumptions regarding probable future outcomes as the basis for determining estimates. Estimates and their underlying assumptions are reviewed periodically and the effects of any changes are recognized immediately. Actual results could differ from the estimates used and such differences could be significant.
The Company’s annual operating budget and operating budget revisions performed during the year (collectively “Budget”) and the Company’s strategic plan comprise fundamental information used as a basis for some significant estimates necessary to prepare the audited consolidated financial statements. Management prepares the annual operating budget and strategic plan each year using a process whereby a detailed one-year budget and three-year strategic plan are prepared by each entity and then consolidated.
Cash flows and profitability included in the Budget are based on the existing and future expected sales orders, general market conditions, current cost structures, anticipated cost variations and current agreements with third parties. Management uses the annual operating budget information as well as additional projections or assumptions to derive the expected results for the strategic plan and periods thereafter.
The Budget and the strategic plan are approved by management and the Board of Directors. Management then tracks performance as compared to the Budget. Significant variances in actual performance are a key trigger to assess whether certain estimates used in the preparation of financial information must be revised.
Management needs to rely on estimates in order to apply the Company’s accounting policies and considers that the most critical ones are the following:
Estimating the fair value of assets acquired and liabilities assumed (“Net assets”) in business combinations
The acquisition method, which requires significant estimates and judgments, is used to record business combinations. As part of the allocation process, estimated fair values are assigned to the Net assets acquired, including trademark and customer relationships. The estimation is based on the Company’s expectations with respect to future cash flows, economic conditions and discount rate. The excess of the purchase consideration over the estimated fair value of the Net assets acquired is then assigned to goodwill.
Estimating Recoverability of Deferred Tax Assets
Deferred tax assets are recognized only if management believes it is probable that they will be realized based on annual budget, strategic plan and additional projections to derive the expected results for the periods thereafter.
Estimating Provisions for Regular Product Warranty, Product Liability, Sales Program and Restructuring
The regular warranty cost is established by product line and recorded at the time of sale based on management’s best estimate, using historical cost rates and trends. Adjustments to the regular warranty provision are made when the Company identifies a significant and recurring issue on products sold or when costs and trend differences are identified in the analysis of regular warranty claims.
| BRP Inc. | Management’s Discussion and Analysis | 39 |
The product liability provision at period end is based on management’s best estimate of the amounts necessary to resolve existing claims. In addition, the product liability provision at the end of the reporting period includes incurred, but not reported claims, based on average historical cost information.
Sales program provision is estimated based on current program features, historical data and expected retail sales for each product line.
Restructuring provision is initially estimated based on restructuring plan estimated costs in relation to the plan elements approved by management. Restructuring provision is reviewed at each period end in order to take into account updated information related to the realization of the plan. If necessary, the provision is adjusted accordingly.
Estimating the Discount Rates Used in Assessing Defined Benefit Plan Expenses and Liability
In order to select the discount rates used to determine defined benefit plan expenses and liabilities, management consults with external actuarial firms to provide commonly used and applicable discount rates that are based on the yield of high quality corporate fixed income investments with cash flows that match expected benefit payments for each defined benefit plan. Management uses its knowledge and comprehension of general economic factors in order to conclude on the accuracy of the discount rates used.
Estimating the incremental borrowing rate used in measuring lease liability
Management makes estimates in the determination of the incremental borrowing rate used to measure the lease liability for each lease contract when the interest rate implicit in the lease is not readily available. The incremental borrowing rate should reflect the interest rate the Company would have to pay to borrow the same asset at a similar term and with a similar security.
Estimating the lease term
On commencement date, when determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option or not exercise a termination option. Extension options or periods subject to termination options are only included in the lease term if the lease is reasonably certain to be extended or not terminated. This assessment is reviewed if a significant change in circumstances occurs within the Company’s control.
Significant Judgments in Applying the Company’s Accounting Policies
Management needs to make certain judgments in order to apply the Company’s accounting policies and the most significant ones are the following:
Impairment of Property, Plant and Equipment, Intangible Assets and Right-of-Use Assets
The Company operates using a high level of integration and interdependency between design, development, manufacturing and distribution operations. The cash inflows generated by each product line require the use of various assets of the Company, limiting the impairment testing to be done for a single asset. Therefore, management performs impairment testing by grouping assets into CGUs.
Functional Currency
The Company operates worldwide but its design, development, manufacturing and distribution operations are highly integrated, which require significant judgments from management in order to determine the functional currency of each entity using factors provided by IAS 21 “The Effects of Changes in Foreign Exchange Rates”. Management established the functional currency of each entity as its local currency unless the assessment of the criteria established by IAS 21 to assess the functional currency leads to the determination of another currency. IAS 21 criteria are reviewed annually for each entity and are based on transactions with third-parties only.
| BRP Inc. | Management’s Discussion and Analysis | 40 |
Environmental, Social and Governance
In April 2022, the Company announced its commitment to take corporate social responsibility (CSR) even further with the launch of its new CSR25 program. It includes more ambitious environmental targets than ever before, concrete initiatives, and sets goals for 2025 and beyond. It also reflects the Company’s intention to be the industry leader in corporate citizenship.
The Company’s CSR25 program fosters value creation around three main pillars: Environment, Social and Governance. The responsibility of each of them has been assigned to senior executives who leverage their expertise to ensure the program’s objectives are achieved. They specifically focus on BRP’s employees, communities, operations and products and are broken down as follows:
| ● | Reduce the carbon footprint relating to products and operations. |
| ● | Ensure a positive and sustainable impact in communities and the daily lives of employees. |
| ● | Continue to make sound strategic decisions, maintain high ethical standards and conduct operations in a sustainable manner. |
Concurrent to the launch of the CSR25 Program, the Company has the following initial environmental targets:
| ● | Having 50% of its units sold as electric by 2035; |
| ● | Making its facilities carbon neutral and reaching zero waste to landfill by 2030; |
| ● | Reducing CO2 emissions from its supply chain by 25% by 2035. |
In May 2022, the Company launched its new “BRP Responsible Rider” program, which empowers and encourages all riders in the powersports and marine community to ride responsibly and to be mindful of safety, riding etiquette and the environment.
On June 1, 2022, the Company announced its first community engagement program entitled “Ride Out Intimidation” and is teaming up with experts and credible organizations to raise awareness and implement meaningful initiatives on a global scale. As such, it has also reiterated its objective to invest 1% of pre-tax profits in community support by 2025.
On October 3, 2022, the Company started the construction of its first EV manufacturing facility for the Can-Am electric two-wheel motorcycle production in Querétaro, Mexico. It was designed following the LEED principles with sustainable materials, in line with the Company’s corporate social responsibility plan to reduce the carbon footprint of its operations.
The Company’s approach to ESG matters is overseen by the ESG Executive Council and by the Board of Directors, principally through its Nominating, Governance and Social Responsibility Committee.
For full details about BRP’s CSR25 program, its initiatives, and the most recent CSR report please visit the Corporate Social Responsibility section (www.brp.com).
| BRP Inc. | Management’s Discussion and Analysis | 41 |
Controls and Procedures
The Company’s President and Chief Executive Officer and the Chief Financial Officer are responsible for establishing and maintaining the Company’s disclosure controls and procedures as well as its internal control over financial reporting, as those terms are defined in National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings of the Canadian securities regulatory authorities and Rule 13a-15(e) and Rule 15d-15(e) under the U.S. Securities Exchange Act of 1934, as amended.
Disclosure controls and procedures
The President and Chief Executive Officer and the Chief Financial Officer have designed, or caused to be designed under their supervision, disclosure controls and procedures in order to provide reasonable assurance that:
| ● | material information relating to the Company has been made known to them; and |
| ● | information required to be disclosed in the Company’s filings is recorded, processed, summarized and reported within the time periods specified in securities legislation. |
Internal control over financial reporting
The President and Chief Executive Officer and the Chief Financial Officer have designed, or caused to be designed under their supervision, such internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.
There has been no change in the Company’s internal control over financial reporting during the third quarter ended October 31, 2022, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Management determined that the Company’s internal control over financial reporting was effective as of October 31, 2022.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management’s projections of any evaluation of the effectiveness of internal control over financial reporting as to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
| BRP Inc. | Management’s Discussion and Analysis | 42 |
Risk Factors
For a detailed description of risk factors associated with the Company, refer to the “Risk Factors” section of the Company’s MD&A for the fourth quarter and the fiscal year ended January 31, 2022. The Company is not aware of any significant changes to the Company’s risk factors from those disclosed at that time.
Disclosure of Outstanding Shares
As at November 28, 2022, the Company had:
| Issued and outstanding shares and stock options | ||
| Multiple voting shares with no par value |
42,384,200 | |
| Subordinate voting shares with no par value |
36,361,267 | |
| Stock options to acquire subordinate voting shares |
3,712,729 | |
Additional Information
Additional information relating to BRP Inc. is available on SEDAR at www.sedar.com.
| BRP Inc. | Management’s Discussion and Analysis | 43 |
Exhibit 99.3
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, José Boisjoli, President and Chief Executive Officer of BRP Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of BRP Inc. (the “issuer”) for the interim period ended October 31, 2022.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in Regulation 52-109 respecting Certification of Disclosure in Issuers’ Annual and Interim Filings (c. V-1.1, r. 27), for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
5.1 Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is Internal Control – Integrated Framework (2013 COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission.
5.2 N/A
5.3 N/A
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on August 1, 2022 and ended on October 31, 2022 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
Date: November 30, 2022
| (s) José Boisjoli
|
| José Boisjoli President and Chief Executive Officer |
M.0. 2008-16, Sch. 52-109F1; M.0. 2010-17, s. 5.
Exhibit 99.4
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Sébastien Martel, Chief Financial Officer of BRP Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of BRP Inc. (the “issuer”) for the interim period ended October 31, 2022.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in Regulation 52-109 respecting Certification of Disclosure in Issuers’ Annual and Interim Filings (c. V-1.1, r. 27), for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
5.1 Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is Internal Control – Integrated Framework (2013 COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission.
5.2 N/A
5.3 N/A
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on August 1, 2022 and ended on October 31, 2022 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
Date: November 30, 2022
| (s) Sébastien Martel
|
| Sébastien Martel Chief Financial Officer |
M.0. 2008-16, Sch. 52-109F1; M.0. 2010-17, s. 5.