Polaris 2005 Annual Report Download - page 16

POLARIS INDUSTRIES INC.12
An international evolution. Polaris began
selling snowmobiles in Scandinavia in the
late 1960s and gradually added new markets
as opportunities arose. But for the first three
decades, we treated international as more
of a sideline business. In the late 1990s,
we began to take a more holistic approach.
We increased international profitability by
switching from third-party distributors to
Polaris-owned subsidiaries in key markets.
We also began taking a more global
approach to product design. In 2002,
we introduced the Quadricycle specifically
to meet Europe’s stricter regulations for
on-road ATVs. Today, we take into account
the regulations and customer preferences
in all our markets, so we can design vehicles
that are compliant and appealing in a
majority of countries. Following are business
highlights by region:
Europe. Most of our international efforts have
been focused here, where there’s demand
and money. We were the first American
manufacturer to sell ATVs in Europe, where
ATVs are on a double-digit growth trajectory.
Asia / Pacific. Early efforts focused on sourcing
versus exports, but we became one of the
first ATV manufacturers to enter Australia and
New Zealand in the late 1980s, targeting the
thousands of sheep and cattle stations.
Our goal of becoming dominant in powersports might seem ambitious if Polaris was just a
North American company. But we have been steadily growing our international business since
the late 1960s, and a new partnership with Austria-based KTM could eventually transform us
into the largest non-Japanese manufacturer of powersports products.
We initially bought a 25 percent
ownership stake in KTM. Through seven key
project initiatives designed as “test drives,”
we’ll know if we have a cultural fit and if the
relationship can deliver specific financial
benefits across all major operational areas.
If we are successful, we expect Polaris and
KTM to become one company in late 2007.
The joint projects include:
Distribution. Polaris will help KTM selectively
grow its North American distribution and KTM
will become our German distributor to help
drive market share growth in that country.
Purchasing. By purchasing together, we can
reduce supply costs significantly.
Design. We’re co-developing ATVs in 2006.
Manufacturing. KTM is exploring the feasibility
of manufacturing ATVs for us in Europe.
Today, each company ships more than 25,000
units a year across the pond. We could save
dramatically on freight and duty costs through
geographically targeted manufacturing.
•The street-legal Quadricycle was built specifically
for the European market.
•Our largest revenue-producing subsidiary is
Scandinavia, which includes this Sweden facility
and one in Norway.
GROWING INTERNATIONAL PROFITS
A turning point in international profitability came
in 2002, when we began to reap the benefits
of our strategic shift from independent distributors
to direct subsidiaries. In 2005, more than
half our international revenue came through our
five subsidiaries — in Britain, France, Sweden,
Norway and Australia.
Operating Profit
296%
160%
107%
01 02 03 04 05
Revenue $ Units Sold
Middle East / Africa / Russia. Sales in Africa
are growing, thanks to the tourist-driven ATV
rental business and agriculture. Much of our
Middle East business comes from contracts
with the U.S. and U.S.-allied governments
that are helping search for terrorists in the
mountains of Afghanistan on Polaris ATVs.
Latin America. Political unrest and currency
fluctuations make this one of the world’s
most volatile regions. However, we are the
dominant ATV provider in Argentina and
Costa Rica, and see immense potential in
Brazil, which is on course to become the
world’s next agricultural superpower.
An international revolution. In 2005, we
took a bold step toward achieving greater
global expansion through a partnership
with Austrian motorcycle manufacturer
KTM Power Sports AG. On paper, it looks
like a perfect fit. We both have 50 years
of experience in powersports, but with very
little competitive product overlap. They
can help us with engine technology and
European distribution. We can help them
with ATVs and U.S. distribution. They’re
known for performance powertrains;
we’re the chassis experts.
THINK BEYOND