With all the fuss about Bombardier Inc.s recent woes about both its trains and planes divisions, it’s easy to forget that the company only made snowmobiles when Joseph-Armand Bombardier founded it as L’Auto-Neige Bombardier Ltée in 1942.
But the company’s original raison d’être was relegated to somewhat of an afterthought over the decades as the manufacturer shifted its attention to building subways and private jets, eventually turning what was once a backcountry business into a Quebec institution and global transportation giant.
By 2003, Bombardier even spun off its recreational products into a separate unit, now called BRP Inc., so it could focus on chasing mass transit contracts worth billions of dollars instead of selling Ski-Doos and Sea-Doos worth thousands.
Seventeen years later, the spinoff, which went public in 2013, is worth more than its former parent.
BRP vaulted to a market value of $5.8 billion near the end of January, almost twice as much as Bombardier Inc.’s $3.2-billion valuation. BRP’s valuation has steadily bested Bombardier’s since fall 2019, a banner year for the powersports company.
But the chief executive of the Valcourt, Que.-based BRP isn’t measuring its success against Bombardier’s despite their shared history.
BRP CEO José Boisjoli at the companys offices in Valcourt, Quebec, in 2017.Dario Ayala for National Post files
“We are not in competition with other companies except our competitors in our own industry,” José Boisjoli said. “We are focusing on our own story and our own plan, and we are very, very proud of what we have built over the last 10 years.”
Boisjoli’s plan for BRP now is to reach his next goal of $9.5 billion in revenue by the end of 2025, up 83 per cent from $5.2 billion in fiscal 2019 and more than triple the $2.9 billion achieved in 2013.
To do that, however, BRP must contend with the spectre of a potential recession, which generally takes a toll on luxury items such as new snowmobiles, and the trend toward electric vehicles since BRP’s recreational products rely on gas.
By the numbers to this point, BRP’s strategy to grow its product offerings so that dealers have something to sell no matter the season has been working.
We are focusing on our own story and our own plan, and we are very, very proud of what we have built over the last 10 years
BRP has grown from two product lines when it split from Bombardier to eight in 2020, and now has 4,500 dealers in 127 countries and 13,000 employees in 26 countries. It has also expanded its manufacturing footprint from Canada and Austria to add facilities in the U.S., Mexico, Finland and Australia.
“We’re gaining share in almost every product line that we are in because we created the best value proposition in the industry,” Boisjoli said.
Analysts estimate BRP will earn nearly $6 billion in revenue for the fiscal year ended Jan. 31, 2020. Although overall industry growth is flattish, Boisjoli said BRP expects 12-to-14-per-cent growth by year-end.
Yet purveyors of luxury products can expect to take a hit if a recession arrives, as there are only so many snowmobiles and ATVs a person can buy, even in the best economic times.
Boisjoli, who joined BRP in 1989, has watched the industry go through ups and downs before. The recession in 2008 was particularly rough, derailing BRPs initial plans to go public and forcing it to lay off 2,000 workers. The Quebec government reportedly stepped in with a $50-million emergency loan so BRP could continue research and development as revenue plunged.
The exterior sign at the BRP assembly plant in Valcourt, Quebec.Dario Ayala for National Post files
Although the company is publicly traded, the founding Bombardier and Beaudoin families and Bain Capital Inc. control it through a multiple voting share structure. As of April 2019, the families held 45.7 per cent of the voting power and Bain held 34.9 per cent. Fidelity Management and Research Co., the largest subordinate voting shareholder with 12.2 per cent of such shares, holds 1.4 per cent of the voting power.
That recession was one of the worst in history, but a milder recession would delay BRP’s financial targets by a year or two, he said, though the end goal would remain the same.
“Our industry always bounces back,” he said.
One potential headwind was recently removed since the United States-Mexico-Canada Agreement to replace the North American Free Trade Agreement is in the process of being ratified.
Our industry always bounces back
“We’re very happy that this uncertainty is behind us,” Boisjoli said, adding BRP stayed close to negotiators from all three countries throughout the process since it manufactures some products in each of them.
Boisjoli said North America needs a trade agreement in order to be competitive against lower-cost jurisdictions such as Eastern Europe and Asia where competitors such as Yamaha Motor Co. Ltd. and Suzuki Motor Corp. have operations.
National Bank analyst Cameron Doerksen said BRP has outspent its competitors — which also include U.S.-based companies Polaris Inc. and Textron Inc.’s Arctic Cat — on developing new vehicles, which puts it in a better position than it was in 2008, when it was still predominantly focused on snowmobiles and personal watercraft.
Though BRP is best known for its Ski-Doos and Sea-Doos, its product arsenal now also includes side-by-side vehicles (SSVs), which are small four-wheel-drive off-roaders that drive more like cars than all-terrain vehicles.
A collection of BRPs side-by-side vehicles in 2015.CNW Group/BRP Inc.
“(BRP) is aggressively rolling out a lot of new products and growing their market share from a relatively low base,” Doerksen said, adding the company has expanded geographically as well. “They’re more recession resistant than the last time around.”
Demand for SSVs is rising, and the market for them is less cyclical because farmers, ranchers, hunters and workers in a variety of other industries use them. The utility vehicle market is almost 70 per cent larger than the powersports market based on retail units, Desjardins analyst Benoit Poirier noted last fall.
BRP’s SSV retail sales grew 29 per cent in its last quarter compared to industry growth in the high single digits, according to analysts.
That’s not to suggest BRP is leaving its bread-and-butter recreational products behind, though it is shifting its marketing strategy to focus more on the experience of riding instead of the products themselves. Boisjoli, who said he has met his best friends while riding BRP vehicles, is selling a lifestyle of outdoor adventure with shared meals at the end of the day.
He calls the experience powersports therapy.
“When I ride our watercraft for a few hours, you need to be focused. You sit on the vehicle, you’re part of the environment, you have the air, the smell, it’s an experience,” he said. “When you do this, you forget about the day-to-day stuff, you forget about the business.”
A BRP Ski-Doo.CNW Group/BRP
It’s certainly hard to forget about the sound Ski-Doos and Sea-Doos generate, even if BRP relies on pristine backcountry environments to help it sell such machines. That’s a fact not lost on the company, which is exploring electrification as consumers pay more attention to climate change and the effects that various products have on the environment.
Last year, BRP released six prototype electric vehicles across its product line, though it could be a while before it commercializes them.
Technology used in recreational vehicles typically lags five to 10 years behind those used in cars, Boisjoli said, since auto manufacturers have a larger scale and more capital to invest in research and development.
Although everyone sees that electric cars are becoming more popular, he said it’s more difficult to electrify a snowmobile because of its size and where it operates.
“It’s difficult to pack enough energy to have a decent range at a decent price,” he said. “And it’s very difficult in the forest or on the lake to find a plug to recharge.”
Still, the industry so far is meeting increasingly stringent regulations when it comes to reducing its environmental footprint, such as reducing emissions and noise, while increasing safety, Boisjoli said.
For example, one of BRP’s watercraft models, the Spark, is made from 100 per cent recyclable material. Even snowmobiles, he said, have come a long way in addressing such concerns during the past decade.
The National Bank’s Doerksen said it’s still early days for electrification given technological and emotional reasons.
“There’s not a huge amount of demand to electrify the vehicle when a big part is the feeling of the engine under you and the power and the noise associated with that,” he said.
But Doerksen sees a potential opportunity in urban mobility solutions, such as programs in Paris and New York City that allow people to rent small, electric-powered mopeds by the minute, much like a bike-share system. BRP is working on prototypes in this space as well.
Desjardins analyst Benoit Poirier said these city-style two-wheelers are the most exciting part of BRP’s electrification display.
A BRP electric moped prototype.Handout/BRP Inc.
“We expect millennials to be attracted to the environmental aspect and fun factor as these products tend to be lighter,” he said in a note to clients last fall. “The release of these concepts to the market was a big step forward for the electrification of the powersport industry.”
Operating in the urban environment may seem a long way off BRP’s backcountry roots, but the company is used to exploring different territories after a decade of introducing new products and expanding into new regions.
And without its former parent Bombardier at the wheel, burning through cash for products that dwarf recreational vehicles in size and cost, BRP can keep steering its own path forward.
Financial Post
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