Good morning, ladies and gentlemen. Welcome to the BRP Inc.'s FY23 Fourth Quarter Results Conference Call. [Operator Instructions] I will now like to turn the meeting over to Mr. Philippe Deschenes. Please go ahead, Mr. Deschenes.

Thank you, Judy. Good morning and welcome to BRP's conference call for the fourth quarter of fiscal year '23. Joining me this morning, are Jose Boisjoli, President and Chief Executive Officer and Sebastien Martel, Chief Financial Officer. Before we move to the prepared remarks, I would like to remind everyone that certain forward-looking statements will be made during the call and that actual results could differ from those implied in the statements. The forward-looking information is based on certain assumptions and is subject to risk and uncertainties. And I invite you to consult BRP's MD&A for a complete list of these. Also, during the call, reference will be made to supporting slides and you can find the presentation on our website at brp.com under the Investor Relations section. So with that, I'll turn the call over to Jose.

Thank you, Phil. Good morning, everyone. And thank you for joining us. Please turn to Slide 4. I am very pleased with our Q4 performance, which was our strongest quarter ever. It allowed BRP to conclude fiscal year '23 with record sales, normalized EBITDA and normalized EPS. It was a very dynamic year, marked by our ability to respond to continued strong demand for innovative products, while showing tremendous resilience by working to supply chain pressure and a cyber incident. Our teams once again demonstrated its incredible activity. We adapted to evolving market condition and executed diligently in a challenging environment. As a result, we've delivered solid retail growth and outpaced competition by recording an exceptional five percentage point market share gain in North American Powersports industry. During the year, we continue positioning the business for long-term success. We accelerated investment in product development, completed our side-by-side capacity expansion project at Juárez 3. And so there was multiple market shaping product, notably our new Howard winning pontoon generation and completed three strategic acquisitions. As you can see, it was a very busy year. That started to Slide 5 for key financial highlight of the year. With delivered record results on both top and bottom line. Revenues increased 21% from the previous year surpassing the $10 billion mark for the first time in our history. This was driven by higher volume and favorable pricing across the portfolio. Normalized EBITDA grew 17% to $1.7 billion, representing a very strong EBITDA margin of 17%. Normalized EPS increased 21% to reach $12.05 above the higher end of our guidance. As for retail, our North American Powersports sales were up 6% for the year, or 5%, excluding the Sea-Doo switch Pontoon, compared to a decrease of about 10% for the industry. We ended the year…

Thank you, Jose. And good morning, everyone. We completed fiscal '23 with another record quarter, as we continue to experience solid customer demand for products and demonstrated strong execution in delivering our production plan. Looking at the numbers, our revenues for the quarter were up 31% versus last year, passing the $3 billion mark in a quarter for the first time ever. We generated $788 million of gross profit representing a margin of 25.6%, slightly down in comparison to last year's level primarily due to inefficiencies related to the ramp up of production of the new Manitou pontoons in some overhead investments. Worth noting however, for the first time in many quarters, the pricing actions that we took over the last few months offset the inflationary costs that we were subjected to. And we expect this trend to continue into next year. Continuing down the P&L, we generated record normalized EBITDA for the quarter of $528 million, representing a margin of 17.2%. And our normalized net income reached $309 million, resulting in a normalized earnings per share of $3.85 for the quarter, ahead of expectations and resulting in a full year normalized diluted EPS that came in about our guidance range. Supported by the strong results, we ended the year with a robust balance sheet with over $200 million of cash and a healthy net leverage ratio of 1.5 times, providing ample flexibility for further investments in the business and capital distributions. One thing I want to highlight about our financial performance, is the structural improvements we delivered in the recent years that significantly enhanced or normalized EBITDA margin profile. You can see this on Slide 18, in fact, our normalized EBITDA margin is up 370 basis points over the last three years, primarily driven by sustainable improvements, such as…

Thank you, Sebastien. I am very proud of our team achievements in fiscal year '23. We are now looking forward to a promising future, and we are well positioned to deliver solid growth in the years ahead. In fiscal year '24, we will continue to progress on our strategic initiative. We are confident that our investment in innovation in R&D will lead to further market share gain in the marine and powersport industry, more particularly in side-by-side vehicle supported by additional production capacity. Furthermore, in the past two years, we prioritized output over efficiency. Now with the supply chain stabilizing, we are focusing again on execution and efficiency. Over the midterm, we remain on track to deliver our M25 objectives. Looking beyond we are maintaining our focus on the three addressable market that we have presented last June at our Investor Day. And we are committed to growing sustainably as we make further progress on our journey toward electrifying our product lines. In conclusion, I want to thank all our key contributors to our success. This includes all BRP employees whose dedication, resilience and constant effort are second to none. I also acknowledge the strong support of our dealers and suppliers who helped us get to market the industry leading product that forge our reputation. On that note, I turn the call over to operator for the questions.

Thank you. [Operator Instructions] Your first question comes from Mark Petrie from CIBC. Please go ahead.

Good morning. We're hoping that you can just shed some more light in terms of the commentary with regards to consumer demand. And I guess specifically, those areas where you are monitoring and momentum and used units and value segments, as well as some OEMs and dealers returning to more typical levels of in incentives. If you could just share a little bit more detail on that be helpful. Thanks.

Yeah, good morning, Mark. On consumer demand, obviously, like I said in my intro, and I will try to give you a bit more color. There is many, many positive, our Q4 our retail was up high numbers. The traffic shows and dealers are still good and better than what some were expecting. Our snowmobile booking with dealers is as expected and our preorder sales, and we're looking at the trends on a daily basis is tracking to pre-COVID numbers and very strong and snowmobile, about a third of our production typically is presold to consumers. And our website traffic and Google search are again above pre-COVID numbers. Now, on other element that we're watching the used market has slowed down. Obviously dealers still own used units that were trade at high value, and dealer -- a tendency to maintain their pricing right now then the retail has slowed down on the used unit. The seasonal pattern is coming back to a more normal, I would say pattern. And some OEM and dealer have started to give some incentive. Then, when you look at all this, there is a lot of mixed signal in the industry, but we feel confident that we can continue to grow despite that macroeconomic situation. And if I could have, the unemployment rate are still very low compared to many years ago. And also access to credit is pretty good.

Okay, thanks. So yeah, I wanted to follow up on that last point, you mentioned is I mean, like some of the recent developments in the U.S. around liquidity and access to credit, I'm just curious to hear your perspectives on the availability of financing for your customers. And any views on that in 2023, or maybe any recent conversations with some of your finance partners that you could pass on. Thanks.

Good morning, Mark, it's Seb. If I look at the Q4 numbers, they were in line with what we were seeing in Q2 and Q3, so no slowdown in terms of availability. What we are seeing quarter-to-date is that the actual number of applications is going up significantly. And so people are curious and assessing what the credit market is. And overall their closure rate that they created is higher than what we've seen pre-COVID. So one interesting trend that we see is that yes, obviously interest rates are higher, so the cost is higher. But what we've seen is that people have extended the financing term. So instead of doing a 54-month, they'll go to a 60-month. And we're seeing that trend across all of the product lines. So some of them are shopping for a monthly payment and the way to achieve their monthly payment with higher interest rates is to extend the financing term. But FICO scores are still trending higher than pre-COVID as well.

Yeah, excellent. Okay. Well, thank you for all the comments and congratulations on the great year and the market share wins.

Thank you, Mark.

Your next question comes from Robin Farley from UBS. Please go ahead.

Great, thanks. Also questions on kind of some of your mentions of what competitors are doing with sales programs. Would you describe the types of programs out there as being just kind of typical what they were to pre-COVID or maybe even not quite that aggressive? I wonder if you could characterize this. And then also, are you seeing that from some of the newer entrants in the market, or is it really more the sort of more entrenched OEMs maybe responding to some of the newer entrants from a market share intrusion perspective? Thanks.

Good morning, Robin. Obviously, it's a very wide question. I would say, programs are not as aggressive as they were pre-COVID, but more than last year, obviously. And I would say it depends of the dealers and the OEM, but I would say it's about maybe halfway to what they were pre-COVID. And we don't see more program from some of the new OEMs that are more present in North America.

So you're saying you're saying you're not seeing it from the newer entrants? So I just want to make sure I understood.

No, we don't seeing it.

Okay, great. Thanks. And then just for my follow up question, can you just remind us on your side-by-side capacity, with Juárez 3 kind of what, how ramped up are you and what additional capacity you would have sort of by the end of the year, or any other new future planned additions, just kind of remind us of your capacity? Thanks.

Yeah, under side by side, on Juárez 3, if you remember, Juárez 3 Phase 1 was having 60% more capacity. And Juárez 3 Phase 2 was another 50%. Basically compared to -- with Juárez 2 and Juárez 3 together, we have doubled the capacity than we had with Juárez 2. And right now, it's up and running.

And we've had twice the capacity growth for side-by-side Robin in the last several years since we've been more targeted on side-by-side. And every time we've added capacity, dealers have given us the support base. We've obviously gained market share. So this new capacity, obviously, coming online is another great opportunity to key role.

And I knew that the capacity the facility has strong, but is it fair to say that you're not you still have room to go in terms of actually utilizing all the capacity that is available in this new phase? Is that fair to say that that's still kind of incremental?

Absolutely, we were probably running at fiscal '23, with the supply chain constraints at 80% capacity. And the plan is here is to run now this -- with this new capacity, probably running between 80% and 85%. So we'll have more room to grow if the market shows there.

Okay, great. Thank you.

Your next question comes from James Hardiman from Citigroup. Please go ahead.

Hi, this is Sean Wagner on for James Hardiman. I guess going back to sort of the market share things. Now that shipments in the powersports industry are a little more normalized across industry. How confident are you in your ability to protect, particularly those side-by-side share gains? And what's the risk of competitors being more aggressive than they are even now on pricing and promotions to regain that lost share?

Yeah, first, the industry is still healthy. And we gained share with the strength of our product, obviously, that's the basis but also with our momentum with the dealers. And we will continue to bring new products to the pipeline. We investing quite, we investing a lot in R&D and partially on side-by-side, then we are confident to continue to grow market share with our product innovation and the momentum that we have with the dealers, plus the capacity that we just had.

Okay, and I guess the follow up on that, obviously, you've spoken about momentum, and utility being a main driver for 2024. New products as well, your biggest competitor, I guess has also identified those same two drivers, particularly sort of increased shipments from them, due to sort of their supply chain issues improving. I mean, is there room for both of those to happen? Or is it just a matter of you have confidence in your business and your products and the execution that you've had and that we'll see how it shakes out from there.

I mean, it's our confidence in our execution. Last year, we were quite aggressive to run production at higher rates with the producing unit with missing part that we either retrofit ourselves for the dealer or retrofitting it. And I think it gave us a head start versus our competition. And this combined and this is mainly one reason why we gained so much hair last year for all our product lines. Now we continue on this, in the sense that now supply chain is stabilizing, but we have the production capacity. And again, we have very competitive lineups very innovative competitive lineup, and we have the dealer momentum. Then when you put all this together, we're confident that we can continue to grow.

Okay, can you can you quickly remind us sort of what level of market share you would need to take with that expanded production capacity to be margin neutral, given a higher overhead?

Well, it's obviously as you saw, in the margin bridge that I gave on the call, our expectation is the FTS [ph] volume is going to increase we're going to see a positive coming from pricing, we're going to see a positive coming from reduction in tournaments. We are going to invest in sales program this year. And so we are planning to be about up 50 basis points on gross margin and also higher investments in OpEx by 50 basis points. So from an EBITDA down margin point of view, neutral. Yes, we are expanding the plans from these costs are absorbed with the additional volume that we'll be producing.

Okay, thank you very much.

Thank you, Sean.

Hey, yeah, next question comes from Martin Landry from Stifel GMP. Please go ahead.

Hi, good morning. My first question is on the on the industry and your guidance. It looks like from what I read on your slides, the North American powersports industry was down low-single digits in 2022 in North America. And I think in your guidance, you expect stable industry growth in '23. So am I reading this correctly, that you're expecting some sort of an improvement year-over-year in the industry in North America this year?

No, what we said, Martin in the prepared remarks was a flat industry and flat industry was actually so flat year-over-year and that would be down versus pre-COVID, down single digit. So flat industry is the assumption.

Okay. And I know it's a tough question to answer. But what gives you a confidence that given the macroeconomic environment that we're not going to see the industry decline this year?

Yeah. First, if you look at the new the dynamic, I mean, you see the demand as I just answered to their first question about the consumer demand, but also give you some other data. The new entrant is still about 40% up versus pre-COVID, 70% of those people are saying that they are there to stay into the industry. And those customer are more wealthy, healthy. Basically the household income of our customers is 30%-35% higher than they were pre-COVID. This is an incredible number. And on top when you look at our -- that we are more high end and entry level. And when we look at our customers, a third of the population in U.S. earn household income below $100,000. And our customers two third or above that's $100,000. Then new customer higher household income. And we are more high-end obviously than low end than some of our competitor. And I think we are well positioning to the industry to continue to grow.

Okay, that's helpful. Thank you.

Thank you, Martin.

Your next question comes from Xian Siew from BNP Paribas. Please go ahead.

Hi, guys. Thanks for the question. Maybe following up a little bit on that. You guide for flat industry for calendar '23. Can you help us think about how much share you think you can gain? Is it you gained 5 points of share this year, '22. Is it the same level again in '23? And are there any kind of different areas we should be thinking about a highlight utility, but are there other kinds of areas or where you should be gaining more share?

Yeah. Good morning. Well, the first thing is from a shared growth perspective on the on a seasonal product business that we're not expecting share growth. We are planning for consumer industry which would be down versus pre-COVID. And we're already at 60% and above market share for these products around the world. So on that segment, we're not expecting any market share gains. On year end products business, if you were to look at where is the growth coming from just maintaining our market share in side-by-side, the market share that we've gained in fiscal '23 would bring 7% revenue growth. The pricing impact is a 4% revenue growth. And obviously, we will not stop at the market share that we have in '23. So our expectation is to gain further market share. And that could be another 5% to 10% revenue growth driven from those gains. As we said, obviously, we have a solid line up, but we also have exciting product introductions that are coming this year, which will obviously help the fuel -- further fuel market share gains and growth in business.

Okay, got it. Thanks. And then maybe on the OpEx de-leverage, you mentioned 50 bps. Maybe can you just talk about some of those investments, is it just the fixed costs from the increased capacity? Are you investing more in kind of sales and marketing and or R&D? Any color there would be helpful.

Well, as you saw on our return on capital slide that we showed this morning, obviously, we have a solid track record. And that doesn't come by magic, it comes through investments, and obviously talented people. And so will continue investing in R&D, continue investing in marketing, in order to drive future growth for this business. We're in this business for the long-term. And so business -- or the secret of our success. And we'll continue doing that. So as we grow the business, we expanded to new segments, obviously comes with higher investment.

Okay, thanks, guys. Good luck.

Your next question comes from Craig Kennison from Baird. Please go ahead.

Well, hey, good morning. And thanks for taking my question. Slide presentation has been great. So thanks for that as well. I guess I wanted to ask about first time buyers, because I know you mentioned that that metric had stayed strong. I'm curious if you've been able to track first time buyers from early in the pandemic purchase cycle, and whether you've seen any behavior trends evolve in terms of trade in cycles, or their willingness or desire to upgrade?

Yeah, but wanting, Craig. Obviously, we doing a lot more data, we looking at that more research about this on the quarterly basis. But basically, before COVID, and we've said that number before, new entrant --- our products sold to new entrant was about 20%. And now like I see, in fiscal year '21-'22, it was slightly above 50% and now it's 42%. And it's very, very healthy. And what is interesting is intent to stay in the industry have increased. Now it's at 70%. And the other factor is the household income that we watching carefully. And I think that explain also reason why access to credit remain high. Then when you combine all this together, I know there is a lot of macroeconomic concern and the macroenvironment, but we feel quite good where we stand in the industry.

Thanks. And I wonder if I could just follow up and ask about the health of your dealer network. Clearly, you've gained shared dealers and you're now the most significant brand in many of those dealers. Just didn't comment on the health of those dealers given that are they face tighter margin and some rising costs in terms of floorplan expense.

I mean, overall, we were at the dealer meeting for the snowmobile and the new ATV a month and a half ago now. And the dynamic is excellent. And dealer like OEM that push and we introduced again on snowmobile, a lot of novelties, the electric snowmobile, they see that transition to this new technology coming in and they see the first product are reaching to the market. They were very impressed with the new ETV like I said in my remarks. We were like more than 10 years before -- since we invested in this -- we found that new platform. Then when they look all of this, how dynamic we are and how pushing we are, and they making more money with our product line. Then the relationship we have with our dealers is the highest I never saw. Then when you sell this, we feel happy, obviously. They would like to keep the margin that we had in the peak of the demand during the COVID. But they are realistic that this time is probably pass and it will come back. I will not I hope it won't be to what it was pre-COVID, but then in between of pre-COVID than what we had last year.

Great, thank you.

Thank you, Craig.

Your next question comes from Jonathan Goldman from Scotiabank. Please go ahead.

Hey, good morning, guys.

Good morning.

So I just wanted to circle back to the macro, I guess it seems to be the toughest for sure [ph]. Some investors and at least myself are looking to analog to compare the current environment to past cycles. You guys obviously have a much larger sample size with the company and with the industry. But maybe looking at where we are right now and obviously a lot of uncertainty, but in formulating your guidance, how does the current environment compared to past cycles? And maybe what ways that the industry changed, obviously, the GFC was an extreme event but even the cycles before that any changes structurally in the industry, would be helpful.

But like we said in the remark, we see some slowdown into the used market, but I think this is a temporary thing. Everyone is on the fence right now to maintain high value or high cost. And I think when the spring will come, some dealer will start to reduce their MSRP for used, and this will come back to a more normal level. The other thing is a lot of OEMs and dealers talk about the slowdown into the entry level. We have the spark in the right curve which is preorders is a bit lower than on the high end watercraft and high-end three-wheel vehicle, but it's still higher than pre-COVID on the pre orders. And we are not much into the entry level segment. Most of our product line we selling high-end product with better margin for the dealer and thus I believe it will be less affected than the others. Then when I look all this, I think overall we are in a good position.

If I would just add obviously, the unemployment rates are still very healthy. And that's obviously people have a job. And that that is good for our business and that's been the biggest indicator of a slowdown. When the unemployment rates go up, but as a ERP, obviously if I were to look versus other cycles that we've had, we are a very different business and much more diversified from a product line point of view, from a geography point of view as well. And from a manufacturing effectiveness our cost structure is not the same with the Mexican manufacturing footprint. So I'd say a much more resilient business than we were 10 years ago. And that obviously is a big plus if we were to face a certain economic slowdown.

Now I appreciate that. That's very helpful. And then maybe one more please if I can on the working cap. I think last quarter you mentioned you start to see some unwind as the build up at $500 million in the second half of this year. Has that timeline or a quantum that, obviously trend can get the full 500, has that quantum changed since the last call.

Well the timing of it has not changed yet. But as we've invested a lot in working capital last year due to the supply chain turbulence and having more raw material inventory as a buffer and having submitted units. In terms of overall opportunities I'm looking for this year, obviously with a growing Q4 guidance that we're expecting to grow again this year. It is going to require some investment and working gap. But I do expect that we will recover some of the investments we made last year so north of $400 million cash benefit that I'm expecting to see this year coming from better management of working capital.

So just to clarify that the 400 gross before investments, growing top-line.

So it will be a net.

Perfect, thanks very much, guys.

Thank you.

Your next question comes from Fred Wightman from Wolfe Research. Please go ahead.

Hey, guys. I just wanted to come back to the EBITDA margin bridge. It sounds like you're baking in 200 basis points of incremental headwinds from promos next year versus this year. But I think that that was a 300 basis point tailwind. So what gives you the confidence that you'll be able to hold on to some of that favourability, especially just inventory is normalizing and competitors starting to promote again?

Well, we're not. Obviously we were already a few months in the New Year. And yes, there's a bit of promotion, but we're not seeing the levels of promotion that we've seen in the past. And what we are seeing as promotion is much more targeted towards interest rates, or we'll call it subsidizing interest rates for retail financing. So what we're seeing now, and providing some contingency for the end of the year, we believe that holding at least 100 basis points of sales program saving is certainly feasible. And also we've gotten more sophisticated in how we manage programs over the last few years. And that sophistication is helping us to be much more targeted. And when you're targeted you get some savings because you're not spreading the money. The money in regions that is not needed. So that's another reason why we are confident on that ability of protecting 100 basis points.

Make sense. And then just to come back to the used commentary, it sounds like you guys are expecting used pricing to come down as we move into the spring. And I know that trade in values maybe aren't quite as important to how are some other vehicle categories. But do you think that that is going to result in more negative equity and potentially impact the trade in cycle as we move through the spring or not?

I think this will go over a minute that the dealer will start to redo their MSRP. I think the trade in will restart at the faster pace.

But the trade in is kind of protected as well. There has been a very, very high pricing increase that have been done over the last two or three years something like 14%-15%-16% in some product lines. And so some of the used value will be protected by those increases in MSRP as well. So yes, they are very high. Today they use values, there will be a normalization happening. But I'm not -- because of those price increases, I'm not seeing a significant devaluation in used. That would be equal to what it was pre-COVID.

Okay, thank you.

Your next question comes from Joe Altobello from Raymond James. Please go ahead.

Thanks. Hey, guys. Good morning. I guess first question is on the inventory. I'm trying to figure out how much below optimal your network inventory situation is? I think you mentioned it's about 8% below where it was in fiscal '20. But given your retail growth, where should it be or maybe act another way where a dealer turns today? And where should they be? It seems like there's still a channel fill opportunity. So any color, you can provide, that'd be helpful, thank you.

Then if we give you, and that’s always at the end of Q4, then it'll give you a sort of some colors. On the ATV side, we're about 20% in units, we're about 20% below COVID pre-COVID. But in days, because we've been growing so much during the COVID. During the last two years, we're -- in days we're minus 40% versus pre-COVID. On side-by-side we somewhat equal in units, but we still have a number of days 50%. Because then when we look at the growth we had, you just need more inventory to fuel the retail. For watercraft entry wheel, we slightly above pre-COVID volume because of the model year '22. But the preorder for watercraft is like four times the COVID numbers and three-wheel three times pre-COVID number around slow. Season '23 will end at the end of March, we believe it will be at about the pre-COVID volume. Booking with the year is on plan and the tracking for preorder to consumer is also tracking to more normal. And when we look up all this, we feel confident that we are in the right position with inventory by product line. And in terms of the filling the pipeline should be done by the end of Q1.

Thank you, very helpful. Maybe a follow up on M25. You mentioned earlier, that you're tracking well there. Is that still -- even with the higher interest expense and higher depreciation and you mentioned a $1.35 per share, are we still looking at a $14 number in fiscal '25?

Yeah, obviously, we have solid momentum. We have exciting product news coming out this year next year. And so we're in line to deliver on our '25 commitments of $13.50 to $14.50 EPS in fiscal '25.

Okay, great. Thank you, guys.

Thank you, Joe.

Your next question comes from Jamie Katz from Morningstar. Please go ahead.

Hey, good morning, have just one quick one. I know it was mentioned in the prepared documents that there were still production efficiencies and higher production costs. And I'm curious how you guys expect that to play out over the course of the year, given that the hands could be sort of lumpy laughing the introduction of the switch? And then also the closures or this slower manufacturing maybe at certain points in fiscal 2023. So I guess how does the expense leverage or pressure sort of play out over the course of the year?

Well, we seen some favorable results in the fourth quarter coming from the turbulence. So year-over-year that was favorable. So that's expected to continue in Q1, because Q1 last year was the more challenging quarter from a supply chain point of view. So we're expecting some benefits to materialize this quarter already.

But the back half, theoretically, could be much weaker on the top-line. And so maybe there is a little bit more pressure at least from a growth perspective.

There could be a bit of pressure, but overall, we're expecting solid quarters throughout the year. And so, again depending on how the end of the year materializes, but there's obviously going to be a big benefit coming from the lower turbulence in all fiscal '24.

Thank you.

Your next question comes from Derek Dley from Canaccord. Please go ahead.

Yeah. Hi, thanks. Just a clarification on you keep mentioning flat industry, but is that volumes you're referring to? And then on top of that, you're expecting to get the low-single digit, mid-single digit benefit from pricing?

I'm sorry, I didn't hear your full your question there.

Yeah. Sorry. Just on the flat industry expectation that you have. Is that volumes that you're referring to? And --

Yeah.

Okay. Okay. Good. And then just coming back to the to the cash flow statement a little bit, the incremental CapEx this year is 750 to 800. Given that the business has gotten bigger, and it seems like you have a material innovation pipeline. Is that level sort of what we should expect it as a new normal for the next few years?

Yes, it should be the new normal.

Okay, thank you very much.

Thanks.

Your next question comes from Cameron Doerksen from National Bank Financial. Please go ahead.

Yeah, thanks. Good morning. I just wanted to follow up on the, I guess the working capital guide. You mentioned the $400 million tailwind. Can you give us any kind of sense as to when we might see some of that unwind? I'm sorry, if that's more of a second half of the year? Or is that something we might see in the next couple of quarters?

Yeah, good morning. Obviously, as I said, we've invested in keeping some unfinished inventory on the books last year and also higher raw material as we wanted to have greater safety stock to adjust for any unforeseen changes in supplier capacity. We will still run with some buffer in H1. And so my expectation is that the benefits of the working capital will happen in the second half of the year, once we work with our suppliers, stabilize their production and adjust their capacity as well to ship obviously, the logistics is improving. So that's why we're seeing an H2 benefits happening with that.

Okay, that's helpful. And just on, I guess, sort of debt and interest expense. I mean, obviously, you've had this big investment in working capital. So you guys have more and more money here to fund that. But I mean, free cash flow profile looks quite strong for at least the next couple of years. I'm just wondering, what can you do, I guess, to reduce debt and by extension, reduce your interest expense, because I think your guidance assumes a fairly healthy increase in net interest expense.

Well, from a balance sheet point of view, first I mean, we are at a healthy point. I mean, our leverage is 1.5 times at the end of the year. So it's a healthy leverage. Obviously, we've experienced higher interest costs coming from the adjustments in the base rate. We have the advantage that some of our debt is hedged. So overall, we're assuming an average LIBOR of 5.6%. And even if the race was to go up an extra 1%, that probably have an impact I would say $5 million on the P&L. So the priority is not to deleverage at some points, the interest rates will come back down. And obviously, we have strong EBITDA growth, which is allowing us to offset more than the increase in interest expense and depreciation that we're seeing.

Right. So from a capital deployment priority, I would -- I guess what you're saying is that maybe NCIB is a higher priority item than deleveraging.

Absolutely, the returns are much higher to do with the NCIB. And we plan on being active on the NCIB this year, as we have in the past years as well. It's a much better return of capital to shareholders and being done.

Okay, makes sense. Thanks very much.

Thank you.

Your next question comes from Brian Morrison from TD Securities. Please go ahead.

Thanks. Good morning. I want to follow up on Cameron's question. With your financial guide and your reversal of working capital, that's $1 billion of free cash flow. The last two years you've done an SIB. Now what's the trigger point historically, to proceed with this form of return as opposed to NCIB?

Well, obviously, we've been active in both in terms of NCIB, and SIB. The NCIB, there's a certain maximum you can do within a 12 month period. The current NCIB, the maximum shares we can buyback is 3.5 million shares. So as we said, our expectation is for solid free cash flow. And we've always executed opportunities to be on the SIB. Obviously, today, our multiples are low when you compare to our historical averages. And so any option is on the table, but we plan on being active with buybacks this year.

Okay. Just as you've reiterated your '25 targets, valuations probably flipped at 2025. Any granularity on the details there, it's been changed here $7 billion in year round, and you're $1 billion on marine, it looks like your EBITDA margins a bit higher than your high-60s earlier. Any granularity on changes within that guidance.

No, no material change. Obviously, the plan is what we communicated about six months ago, in June and at the investor meeting. The good news as some of the momentum we were planning to have over the three year period up to 2025 happen more quickly, in side-by-side. So given us the confidence that we can achieve our '25 target, with the more rapid than that than we saw in certain product lines. And obviously from a dealer value proposition point of view, dealers like doing business with us and they see that we're bringing new business to them. And just if you look in the last few months, we've announced the switch that's a brand new product line for them, we announced the Sea-Doo rise as well gets a lot of markets and dealer excitement. So everything is lining up from a product line dealer point of view for us to be able to deliver on our product [ph].

And you increased your $500 million target on the switch?

No, not for now.

Thanks very much.

Thank you.

And your next question comes from Sabahat Khan from RBC Capital Markets. Please go ahead.

Great, thanks. And good morning. Just a quick question, I guess on the marine progress. Obviously a big growth number you're giving for next year, but it seems like called out some supply chain issue. Maybe you can share some color on what specific kind of parts or areas you're having issues and maybe the cadence of this ballpark 50% growth that you're wanting for this year?

Yeah, good morning. Obviously. I mean, I won't go into detail because it's between us and suppliers. But I won't go into detail, but basically it's a brand new platform. And we were quite innovative the way we designed the product to obviously reduce costs and give to the customers some features. And with one supplier particularly it's more difficult than what obviously we had planned. And we are in the middle of resolving it then we believe that things will, will improve in H1.

Great. And then just a quick one on kind of the powersports PA&A side. There's a view out there that feels that this segment could go up during the downturn as maybe people spend on lower cost periphery items. If there is a macro slowdown, is it some sort of -- that sort of expectation built into your number here for the guidance for fiscal '24? How are you thinking about the evolution of that segment through the cycle, at least over the next year, year and a half?

Well, obviously, you're right that when there is a slowdown, it is a business that is, is more sustainable, because people still are still writing and or still need to maintain and repair their vehicles. But again, in our assumption that we're not building -- we're not building an assumption for an economic slowdown and the guidance. The growth is obviously coming from a higher number of units that are out there being used by our customers. And also the introduction of new models like the Can-Am ATV that were launched -- that we've just launched, obviously has a high accessory attachment rate to it. And that's obviously drawing accessory sales up. And so that's where their growth is coming from with pricing.

Great, thanks very much.

Thank you.

There are no further questions at this time. I will turn the call back over to Mr. Philippe Deschenes to close the meeting.

Thank you, Judy. And thanks, everyone for joining us this morning and for your interest in BRP. We look forward to speaking with you again for our Q1 earnings call. Thanks again everyone. And have a good day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for joining. And you may now disconnect. Thank you.