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Report On Business BRP chief expects good outcome for NAFTA talks despite ‘tight’ timeline

The BRP research plant is shown in Valcourt, Que.

Graham Hughes/THE CANADIAN PRESS

BRP Inc., the Canadian maker of Ski-Doo and Sea-Doo vehicles, says political leaders have set an aggressive timetable to renegotiate the North American free-trade agreement but that a positive outcome is likely for the continent's largest industries because the stakes are so high.

U.S. President Donald Trump and Canada's Prime Minister Justin Trudeau have both indicated they are aiming to strike a revamped deal by the end of the year. A second round of talks began Friday in Mexico City on 25 areas of discussion including digital commerce.

The timeline is "tight," BRP chief executive officer José Boisjoli told The Globe and Mail in an interview Friday following the report of BRP second-quarter earnings. Still, he said the company's leadership believes an agreement will be struck that benefits all three nations.

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"There is so much potential impact for big industries like agriculture, energy and cars that we believe common sense will prevail," Mr. Boisjoli said. "We believe that at the end of all of this, the new NAFTA will be positive over all." A revamped deal will likely be "simpler to apply" for manufacturers like BRP and sufficient lead times will be offered to implement material changes, he said.

Valcourt, Que.-based BRP is a small player in the overall trade picture. But it depends hugely on continental integration, with factories in Canada, the United States and Mexico.

In the immediate aftermath of Mr. Trump's election last fall, BRP said the NAFTA renegotiation, or any decision by Mr. Trump to pull the United States out of the agreement, amounted to "a big dark cloud" hanging over the company. Mr. Boisjoli subsequently said in March that BRP could move production out of Mexico if NAFTA changes result in heavy border taxes.

Since then however, BRP has pushed ahead with its Mexico operations and even expanded output in the country in a bid to lower costs, betting that Mr. Trump's sometimes incendiary rhetoric about the agreement won't translate into the U.S. pulling out of the pact. BRP is spending roughly $25-million to increase output of two Mexican factories by about 20 per cent. The retooling should be ready by the second quarter of fiscal 2019.

BRP has been in Mexico since 2001 and employs about 3,600 workers at three plants there building Can-Am all-terrain vehicles among other products. Its total global work force is 8,700 people, of which 2,500 are in Canada.

The comments came as BRP reported second-quarter earnings for its 2018 fiscal year that were stronger than expected. The company, spun off from Bombardier Inc. in 2003, tallied net income of $100-million or 89 cents per share on revenue of $1.03-billion, reversing a $68.8-million loss in the same quarter last year.

Sales jumped 20 per cent in the quarter, driven by strong demand for Can-Am side-by-side vehicles and Sea-Doo watercraft in particular, the company said. Gross profit margin climbed 70 basis points to 20.8 per cent.

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Mr. Boisjoli said geopolitics and big currency swings top the list of short-term risks to the business, threatening to undermine what has been a positive employment picture and broader economic strength in the United States and Canada especially. "The global environment, if it stays like this, I believe we have a few more quarters and years I hope of good momentum," he said.

Meanwhile, Hurricane Harvey has forced the closure of 13 dealers in the Gulf Coast area of Texas selling BRP vehicles, the company said. Seven of those suffered less extensive damage and are expected to reopen at some point, Mr. Boisjoli said on a conference call with analysts. "Where the hurricane hit in the centre, it's more serious," he said.

BRP sells products directly to about 900 dealers in the United States. Roughly half of the company's revenue in fiscal 2017 came from that country.

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