Honda Motor Co., Ltd. (HMC) Q3 FY2022 Results - Earnings Call
Honda Motor Co., Ltd. (NYSE:HMC) Q3 2022 Earnings Conference Call February 9, 2022 1:00 AM ET
Company Participants
Noriko Okamoto - Corporate Communications
Seiji Kuraishi - Director, Executive Vice President, and Representative Executive Officer
Kohei Takeuchi - Director, Senior Managing Executive Director
Conference Call Participants
Sean McLain - Wall Street Journal
Noriko Okamoto
[Foreign language] [Interpreted] Thank you very much for taking time out of your busy schedule to attend our press conference today. We'd like to start our Honda Motor Co., Ltd.'s fiscal year 2022 Third Quarter Financial Results Press Conference. I am Okamoto from Corporate Communications. I will the facilitator today, thank you.
First of all, allow me to introduce the presenters today, Director, Executive Vice President and Representative Executive Officer, Mr. Seiji Kuraishi.
Seiji Kuraishi
[Foreign language] [Interpreted] Good to see you.
Noriko Okamoto
[Foreign language] [Interpreted] Director, Senior Managing Executive Officer, Mr. Kohei Takeuchi.
Kohei Takeuchi
[Foreign language] This is Takeuchi, good to see you.
Noriko Okamoto
[Foreign language] [Interpreted] Then Mr. Kuraishi will first present the third quarter financial results, over to you, Mr. Kuraishi.
Seiji Kuraishi
[Foreign language] [Interpreted] I would like to present to you the outline of the financial results for the third quarter and the full year forecast for fiscal year ending in '22. I would like to start with the situations in key markets. The total market demand in Japan was lower than the same period last year due to impact from factors including supply shortages of semiconductors. Honda, though we've seen some growth in models such as Vezel and the cumulative results in the third quarter showed lower sales compared to the same period last year.
N-BOX ranked number one in the new car unit sales among K CARs in the calendar year 2021. While the total market during the fiscal year ending '22 showed firm demand, we believe that it will continue to be impacted by factors including semiconductor supply shortage and the resurgence of the pandemic. Honda will strive to recover its production and will maintain its previous forecast.
Next, taking a look at the total US market, while demand recovered under the economic stimulus measure, it was still impacted by factors including semiconductor supply shortage. So the demand for the cumulative three quarters was almost flat compared to the same period last year. Honda's unit sales for the three quarters surpassed the results of the same period last year due to increase in light truck models. But if we look at the three months, just through the quarter by itself, it was lower than the same period last year due to impact from semiconductor supply shortage. And CIVIC, by the way, was named 2022 North American Car of the Year, by the way.
We see the total market for the fiscal year ending in '22 to sustain strong demand but still we expect that the impact from semiconductor supply shortage and the pandemic to be significant, we believe. Honda has revised its previous forecast downward considering our immediate production status.
Now looking at the Chinese overall market, demand recovered, thanks to the economic stimulus measures by the government, but the impact from the semiconductor shortage resulted in lower demand compared to the same period last year. Honda has expanded sales XR-V and saw some effect from launching the new INTEGRA but still our sales was lower than in the same period last year.
The total market for the calendar year '22 is expected to surpass the previous year with solid demand though the impact from semiconductor shortage remains. Honda has revised its forecast upward considering the most recent sales situation.
In China, in January, Dongfeng Honda Automobile announced the construction of a factory dedicated to electric vehicles. We will continue to further expand our electric motor vehicle product range and provide further attractive products.
Now turning to Motorcycle business, total market while impacted by the COVID-19 pandemic is still showing recovery in demand in many markets. Honda also showed better results in many countries for the cumulative three quarters compared to the same period last year but the numbers were low in countries such as India and Vietnam, due to the impact of resurgence of COVID-19 pandemic. The total market for the fiscal year ending in 2022 is expected to see solid demand, but we expect that the impact from the resurgence of pandemic will still remain. While Honda plans for sales volumes surpassing that of the previous fiscal year, we have revised our forecast downward from the previous forecasts, in view of the sale status in India and the impact from semiconductor supply shortage.
Next, I would like to present the summary of the cumulative results up to the third quarter. While the automobile unit sales declined due to supply shortage of parts, including semiconductor and impacted by the surging material prices, thanks to cost reduction, curbing of incentive and positive forex impact, our operating profit grew by ¥224.6 billion to ¥671.6 billion. And also the profit attributable to the owners of the parent company grew by ¥138 billion to ¥582.1 billion. Unit sales and income statement highlights are as shown on the screen.
Moving on to the consolidated financial forecast for the fiscal year ending in '22. Compared to our previous forecast, COVID-19 pandemic is spreading again, supply shortage of parts including semiconductor continues, and further surging prices of material continues. Thus the environment surrounding our business is expected to remain challenging, but we are making further efforts to curb our SGA expenses and incentive so as to enhance our profitability. So we have revised our operating profit upward by ¥140 billion to ¥800 billion, and also revised our profit for the period attributable to the owners of the parent company by ¥115 to ¥670 billion. The unit sales and income statement highlights are as shown.
Next, about dividend. Forecast for the full year dividend for the fiscal year ending in 2022 is ¥110, unchanged from the previously published forecast. I will now finally like to explain the key points of the results for the third quarter for fiscal year ending in 2022 for the three quarter year-to-date results for the year ending in '22. Regarding supply shortage of semiconductors, with the cooperation from our suppliers, we have adjusted our inventory allocation around the world and made changes to alternative parts. So we have made some improvement compared to the previous forecast.
Compared to the previous fiscal year, though we have seen decrease in Automobile production volume and impact from surging prices of materials, we have made all around efforts and have absorbed all of the impact and have been able to attain higher revenues and higher earnings. Combined with our efforts so far to solidify our existing business, which have given us toughness or resilience in the face of reduced production, the strength of our frontline GEMBA operations, capable of responding promptly to the ever changing environment production sales situations, has shown its true benefits, we believe.
For the fiscal year 2022, full year performance forecasts considering the flood in Malaysia which happened in the fourth quarter, and the impact of reduced production due to wave of Omicron variant, we are keeping the full year Automobile unit sales forecast unchanged. While the environment surrounding our business is expected to be challenging, including surging prices of raw materials, we will further reinforce our structure for generating earnings and we are revising our full year performance forecasts upward. For the next fiscal year, we expect that the impact of semiconductor shortage will linger but we strive to further strengthen the business foundation for profitability which we have built and we ensure that we are well prepared for the future and [relating] for the further growth.
And next, Takeuchi will give the details.
Kohei Takeuchi
[Foreign language] [Interpreted] And I'd like to begin the explanation. First, Honda Group unit sales for FY22 nine months was: Motorcycles, due to increase in mainly Asia, unit sales increased to 12, 775,000 units; Automobiles, due to decline in China and North America, was - unit sales was 3 million units; Life Creation, due to increase in mainly North America and Europe, was 4.5 million units.
And next, FY22 three quarters, nine months change in profit before income taxes. Profit before income taxes was ¥845.2 billion, up ¥186.5 billion from the same period last fiscal year. Operating profit was ¥671.6 billion, up to ¥224.6 billion, from the same period last fiscal year. Operating profit excluding currency translation effect was ¥97.7 billion. Breakdown was, revenue model mix etc., despite the drop in automobile unit sales due to the effect of controlling incentives and others, was plus ¥81.4 billion.
Regarding cost reduction etc., despite the impact of the surge in raw material costs due to cost reduction and price increase effects was minus ¥9.7 billion. SG&A was a plus ¥98 billion, due to cost reduction effect such as warranty expenses.
And next, sales revenue operating profit by business segment. Motorcycle business operating profit was ¥282.3 billion. Automobile business operating profit was ¥188.5 billion. Financial Services business operating profit was ¥258.1 billion. The combined operating profit of Automobile business and Financial Services for Automobiles was ¥437.2 billion. And next, Life Creation and Other businesses. Operating loss were ¥7.4 billion, of which aircraft and aircraft engine operating loss was ¥23.6 billion.
Moving on to cash flows. FY22 nine months, free cash flow on of Non-financial Services business was ¥178.3 billion. Cash and cash equivalent at the end of the period was ¥2,416.8 billion.
And moving on to FY22 consolidated forecast. Honda Group unit sales: Motorcycles forecast is revised downward from the last forecast to 17.04 million units, reflecting drop in mainly Asia. Automobile business, despite shortage in semiconductor supply and resurge of COVID-19 infections, the forecast remains unchanged i.e. 4.2 million units. Life Creation business, reflecting mainly the drop in North America, we're forecasting 5.95 million units.
Let me proceed to explain FY22 forecast, change in profit before income taxes compared to the previous forecast. Profit before income taxes is forecasted to be ¥1020 billion, up ¥160 billion from the previous forecast. Operating profit is forecast to be ¥800 billion, up ¥140 billion from the previous forecast. Operating profit excluding currency effects is plus ¥130 billion. Breakdown is, the revenue model mix etc., despite drop in consolidated automobile unit sales, the low inventory and incentives control, resulted in forecast that is up ¥40 billion.
Regarding shortages semiconductor supply, though we have seen improvement in the nine months versus the previous forecast, there was the flood in Malaysia in the fourth quarter and drop in production due to the resurge of COVID-19 pandemic, yet, Group Automobile unit sales forecast remains unchanged i.e. 4.2 million units for the full year. Consolidated Automobile unit sales in North America is down due to the resurge in COVID-19 cases.
And next is SG&A, is up ¥111 billion due to other expenses being kept low and in addition reduced warranty expenses. And the FY forecast compared to the actual results of last fiscal year, profit before income taxes is up ¥105.9 billion. Operating profit is forecast to be a plus ¥139.7 billion, excluding currency effects. The major breakdown items are revenue model mix, despite a decrease in automobile sales due to incentive control etc., is up ¥74.7 billion.
Cost reduction etc., despite the impact of surging material costs, we saw a cost reduction and price increase effects and these combined, the cost reduction is ¥35 billion minus. And lastly, the FY22 capital expenditure, depreciation, R&D, and the forecast is shown.
This concludes my presentation. Thank you for your attention.
Noriko Okamoto
[Foreign language] [Interpreted] Thank you very much for your attention. So now we'd like to move on to our Q&A session.
Question-and-Answer Session
Operator
[Operator's Instruction] Thank you. The first question is from Yomiuri Shimbun Newspaper. Mr. Katagiri, please? Thank you. And Katagiri from Yomiuri Shimbun newspaper, can you hear me?
Unidentified Analyst
[Foreign language] [Interpreted] Yes, I have two questions. The first question, about the Automobile production situation currently, domestically, the utilization ratio compared to the forecast, it says in the homepage, is as planned. But I really see that - I would like to know what is happening to the production overseas, that is China? And I do hear that there is such an impact of the production overseas but this reduction in production does not necessarily seem to be impacting the forecast. So can I ask you about the stability of production overseas? And the second question. I would like to know more about the increase in profit, the reason? Well, and you say that you control the incentives. And at the last meeting in North America, you said that normally, it's around ¥200,000 but it's a little more than half. But in the past three months, is there a case where you further reduced the incentives? And this trend, even if the lost inventory and shortage of automobiles were to be resolved, will this continue? And also in China, I think that the prices are going up, but are you still going to control the incentives going forward? And you said that the warranty expenses and other expenses have been controlled, but can you elaborate on what this actually contains or includes?
Seiji Kuraishi
[Foreign language] [Interpreted] Let me start to answer about the current production situation. Well currently, globally, there are no factories which have stopped production. So in almost all factories the production is normal. In the third quarter, including our suppliers, we have made a lot of effort and resulting in a recovery and production earlier than expected and the unit's production has recovered to some 1.08 million units whereas the Omicron resurge especially in North America, the supply chain overall, they have a lack of labor and therefore it is difficult to carry out production currently. And in Malaysia, there was a flood. And once again, we see that the semiconductor supply chain is impacting us. In the fourth quarter, originally, the - we're estimating normalization of production. And looking at the - for fourth quarter back in 2019, before the COVID, it was 1.35 million units. We were expecting it to reach that level, but given the current situation, we had to revise. But from the third quarter to fourth quarter, we think that sales is about a plus 11% and so for the full year we can retain this forecast of 4.2 million units.
And whether this is directly linked to production? Well, it depends on the situation about sales and marketing and so it depends on the inventory of different models. So, the production impact does have an impact on some but not so much on others, it depends. But it is true that the production is having impact directly on our sales and marketing. But there is some internal uncertainty about COVID-19, going forward but we want to continue to increase our revenue and profit and maximize our sales. That is all, thank you. And the reason for the increase in profit, Takeuchi will explain.
Kohei Takeuchi
[Foreign language] [Interpreted] Yes about the incentives, was asked. Yes, as Katagiri said, the incentives. Yes, in terms of the consolidated unit sales, it is a negative number. But with the control of incentives and also reduction in warranty expenses, we have managed to offset that. Well, just looking at incentives, especially in North America, last time, it was about $2,000 per unit but it's almost half, as I said but still at the dealers, well, I think that they have a very low stock in terms of the days. And in the second half, we believe that the incentives of the second half of the year will be half or even less than the $2,000. On incentives, the inventory at the dealers, this has been posted as a cost at the dealership and therefore, this also is resulting in reducing the stock inventory and reducing the incentives.
But about the inventory at the dealerships, well, this is true in Japan as well as China but in North America, we see this significantly. And so the North American incentive reduction is the major contributor, and also the warranty expenses that are included. Normally, the warranty expenses includes a claim and also, we, when we inconvenience our customers and well there's recall expenses, and it accounts for some 1.2% or 1.1% of total sales. But I think we have been able to curb this, meaning that we are making improvements in the quality. And this, and therefore, we are estimating that the ratio be less than 1.1%. In the fourth quarter, mainly in North America and also due to the resurge in the Omicron virus, production is not progressing, so we have to revisit our cost expenses. And having done that, we have concluded that we have both revenue and profit increase. Thank you.
Operator
[Foreign language] [Interpreted] Thank you, then we'd like to move on to the next question. We have from Asahi Newspaper, we have Mr. Kamiyama, please. Mr. Kamiyama, can you hear our voice?
Unidentified Analyst
[Foreign language] [Interpreted] Okay, this is Kamiyama from my Asahi Newspaper. Thank you. Yes, I have two questions as well. My first question is about the semiconductor shortage, the impact of that to production. So, from April to December, so far, I just want to know how much of a production decrease has happened because of the semiconductor. And then for the January and March, I think you said that you will try to recover this for production. So I'd like to ask for your prospects for procuring semiconductors. And then the last financial results briefing, you said that you will try to use the semiconductors in major markets like States and the China. If there are any further new actions that you are doing to recover this, please let us know. That's my first question. My second question about the surging raw material prices, so what are you doing against that? So overseas manufacturers, they - some of them, they are raising the vehicle prices to be sold in Japan due to the material prices hike. I wonder if you're ever considering it. I don't think that's ever happened in Japan so far but I'm just wondering what would be the difficulty if you ever try to raise your product prices in Japan? Thank you.
Seiji Kuraishi
[Foreign language] [Interpreted] Okay, then, let me start with the semiconductor shortage. In the three quarter's total, actually - we - for 97 term, we were planning for 5 million units actually, initially. However, against that target, right now we are saying 4.2 million units. So it's 0.8 million units for the year. So for the three quarters, so maybe at about 100 and I believe while we were making progress up to 130,000 in volume, so that is situation as of now for the third quarter. And for the semiconductor shortage, what we are doing against that is as we have been mentioning to you already on - across the globe, we are doing some production adjustments around the world. And we are switching - developing alternative parts and dual sourcing, those are things that we're doing and longer term, reviewing the suppliers. That will be another action which we are taking on as well. But unfortunately, there are some things that can take longer time and some others that can be done immediately. So, we - as of now, we believe that even into the next fiscal year there will be impacts lingering. So Mr. Takeuchi will answer the second question about the raw material price hikes.
Kohei Takeuchi
[Foreign language] [Interpreted] So currently because of the surging prices of raw materials, so right now we are thinking about the precious metals, we are expecting a ¥270 billion raw material increase or so, so this time this will go up actually to ¥290 billion. So, where the ¥20 billion difference coming, where is it? This is the steel price in North America is about to go up, so because of that, we will incorporate into - we incorporate into the fourth quarter numbers. But is that - can we pass that on to the sales in Japan? So in North America, what's happening is because the steel material or the other metals price is going up. So we are, say, making efforts to reduce the cost internally. However, the price surge was too high that we are planning for that in some markets like in North America. However for Japan, we do not have any plans to raise any prices, but when - if we have to in consideration of competition with other manufacturers, we might have to consider going forward. Thank you very much Mr. Kamiyama.
Operator
[Foreign language] [Interpreted] Next question. Next, Nihon Keizai Shimbun Newspaper, Mr. Abe? Abe from Nikkei, please?
Unidentified Analyst
[Foreign language] [Interpreted] First question, going forward and there will be an interest rate hike in the United States, if that is the case and then Financial Service business will be impacted, I think. So, what sort of impacts are you considering? And another question is that electrification, last time at this meeting or compared to that time, for example, including EV electrification investment, total investment or models, a number of models, EV models. Are there any new pieces of information that you can announce today?
Kohei Takeuchi
[Foreign language] [Interpreted] Abe san has asked about the US interest rate hike. The Fed is trying to move towards that direction. And therefore, this is having an impact on the debt market - long term debt market in the US. Now, the cars that were selling in the US, 60% to 70% are being financed by our Honda America Finance and the procurement interest rate will also increase and this procurement interest rate - this will have to be applied to our new customers. So we do expect that customers will have to pay more. About revenue, and say that is the revenue because the cost will increase and if sales will increase, then there will be a slight time gap impact on revenue but not too long but if there's a interest rate hike and then there's inflation, so I think that the consumers will be reluctant to buy. And so I think that that is a source of concern to a certain extent.
Seiji Kuraishi
[Foreign language] [Interpreted] Well about the electrification, we so far have made announcements that Honda globally will move towards electrification and carry out a number of activities. We're accelerating our efforts and be it, product lineup and battery, we want to tie up with the optimum partner for each market. But as for specifics about the progress, when the time comes, we would like to make the announcement. So we thank you for your further indulgence until that time comes.
Operator
[Foreign language] [Interpreted] Thank you, Mr. Abe. Okay then we'd like to move on to the next question. From Wall Street Journal, we have our Mr. Sean McLain.
Sean McLain
Yes. Hi, Sean McLain from the Wall Street Journal. Pardon the question in English. A question on what you said Kuraishi san about labor shortages in the US, if you could provide a greater explanation of what you're referring to, and how big an impact it's had on your production numbers there? And then you mentioned that you saw the impact of COVID carrying into and the semiconductor issue carrying into next fiscal year, do you see it having an impact on the entire next fiscal year or just the first half or second half? When is it, basically when are things going to get better? [Foreign language]
Seiji Kuraishi
[Foreign language] [Interpreted] With the pandemic spreading in the North America, first of all, in our factories, at the suppliers sites as well, they is spreading - the Omicron variant is having a bigger impact. So they are finding it very difficult to secure manpower for the production. So because of that there were some situation where the production got sluggish for some time, but it is not that there was a major impact that's bigger stuff from semiconductor, however, because it was simply not predictable. So then production never fully stopped but and depending on the production lines, which line it was, it is continuing that some are stopping, suspended from time to time. But in any case, suppliers and ourselves, we are utilizing the indirect manpower for production. So currently, our production lines, I believe, have recovered but still going on, for the future is still unknown.
In any case, for the next fiscal year, the Omicron expansion, resources and the semiconductor impact will continue to some extent unfortunately. As I said, we are taking different actions to address those but there are some things that cannot be addressed short-term. And at the same time, it's like everyone's grabbing to get the supplies of semiconductors and so for next fiscal year as well, we are not really in the position to be able to come up with a clear - the sales volume. Or currently for the fourth quarter, right now, have about 1.15 million, so multiply that by four you get 4.6 million. So for next year, we estimating that in the second half things will improve. So we would like to aim for production and sales better than that. That's what we can say. That's all we can say at this point in time. Thank you.
Operator
[Foreign language] [Interpreted] Thank you very much, Mr. McLain. And next, Weekly Toyo Keizai and Mr. Yokoyama, please.
Unidentified Analyst
Toyo Keizai, I am Yokoyama speaking. Can you hear me?
Unidentified Company Representative
Yes.
Unidentified Analyst
[Foreign language] [Interpreted] I've also two questions. Thank you. First battery in North America, already you are going to secure batteries from GM but going forward, what are your plans for securing battery SES? You had entered into an agreement with SES to develop the lithium secondary battery, is this just for North America? Others, what is your thinking on tying up with SES? That's the first part and second, about Tesla. The other day they announced their financial results, and they have more than 10% annual profitability and also more than 900,000 units. Yes, you say that as a business model perspective, how do you see Tesla's perspective? It could be a personal perspective but how do you see Tesla's business model?
Seiji Kuraishi
[Foreign language] [Interpreted] About the battery, as I said, in different markets, we are trying to tie up with the optimum partner for that specific market and to carry out the procurement which is fit for the market. As for the specific situation status, when the time comes, we will make an announcement. So please wait until that time comes. About development with SES, this is development. It's a joint development agreement. And in North America, GM and China's CATL, it's not like that. We'll be talking about procurement, but as a next generation battery, as a candidate, we are working with them to develop the future battery. That's all, thank you.
About Tesla, well, yes, this is another company and competitor, so I would like to refrain from making any specific comments.
Operator
[Foreign language] [Interpreted] Thank you very much. Mr. Yokoyama. Okay, then I'd like to take the next question from a daily newspaper, Automotive Newspaper Mr. Fukui, please.
Unidentified Analyst
[Foreign language] [Interpreted] Okay, this is Fukui from Daily Automotive Newspaper. Thank you. So somewhat detailed question but in the four year outlook for the Automobile business sales for Japan, you had it was a plus, North America negative. So I just would like to know, the background, why your forecasts came out this way? And another one is for the analysis of operating profit. So the variation - variability, you have the curbing of incentive, and then the rate of reduction in sales. So that was a ¥40 billion, so I'd like to know about the details of that and also the cost reduction and the raw materials details?
Seiji Kuraishi
[Foreign language] [Interpreted] Okay, about the sales of Automobiles, for North America, because of the Omicron variant impact, so there was a shortage of manpower. And then or temporarily, that led to production and then that led to lower production, that's the main cause. On the other hand, for the North America even though it declined on a global basis, these - we did a reallocation of semiconductors around the world. And therefore, Japan, the orders are coming in very steadily and many customers are patiently waiting for long term time. So, those have helped. For the - I would like to ask Mr. Takeuchi to talk about the operating profit analysis.
Kohei Takeuchi
[Foreign language] [Interpreted] So giving you the previous time and this time the forecast, so there is ¥40 billion plus, the details of that you want to know? So the volume I talked about it earlier and the total, so including - the global sales volume including China that was 4.2 million, so we have not changed that target. But because this is talking about OP, we are only looking at the consolidated ones. So which means this about 1 million minus for on Automobile, this is mainly coming from North America. So that has about ¥70 billion of impact. And also the incentive reduction that the dealer that we talked about in North America because their inventory level went down at the dealers. So plus was about the ¥85 billion plus. And then so with that, in addition there was a bit of a plus upside on the finances as well. So we have about ¥40 billion. And also cost reduction minus ¥37 billion. So on that, so the steel our price raises in North America and then so we netted some other factors and then it came out the total of the changes in the raw material prices.
Operator
[Foreign language] [Interpreted] Okay, thank you. Thank you very much. Next question, Automotive News. Mr. Hans, please?
Unidentified Analyst
[Foreign language] [Interpreted] Can you hear me? Yes. This is from Hans from Automotive News. I have two questions and can I ask in English?
Unidentified Company Speaker
[Foreign language] [Interpreted] Yes.
Unidentified Analyst
The first question is about the incentives in North America. A lot of automakers are benefiting now from low incentives. But when the market returns to normal situation with better inventories and better supply, how do you see the overall market reacting to this? Do you see a shakeout of companies that are going to have to rely? Some companies will have to rely on higher incentives again and how confident are you that you can keep incentives low when it returns? The market returns? My second question is about the allocation of chips, the global allocation of chips. You said that you're able to reallocate global chips to Japan. Can you talk a little bit about your strategy for allocating chips? And does that mean you're reallocating them from North America to Japan or from other - some regions to other regions? Thank you. [Foreign language]
Kohei Takeuchi
[Foreign language] [Interpreted] To get to the answer on North American incentives. So about the incentives and the future trend, well, as we have been explaining these incentives, the reduction in expenses or cost, of course, the unit price compared to the price on the incentives are kept low, and we are able to do business with low incentives. And as we said, against the dealer's inventory, we allocate the incentive based on the inventory and because the inventory is low at the dealers, it's only some 11 days worth in case of Honda and therefore, this is also positive for us and these combined has, we have seen a better forecast.
Now going forward, if the supply were to increase as it has now, the American customers, they will buy from the inventory and therefore, once we have an increase in inventory to a certain extent, it's not the unit price but the overall price, will have an impact. And therefore, for the unit price and from next fiscal year going forward, we will expand and have new models and therefore we want to try to keep down the incentives as much as possible. But we have to consult the dealers as to how much inventory the dealers will hold. And this part, this might be some margin to increase the incentives due to this.
Well about the allocation of chips, currently we identify where the chips are in shortage, we are on a daily basis monitoring the chips and if there are pluses or minuses, we globally, across the world try to adjust the production based on the available semiconductors. But strategy, well yes, people are going after the limited availability of chips and where they have a large number of production and sales, chips will be allocated, this is natural. And also where products or where there's a strong demand by customers, we will try to allocate the chips to those models. And likewise, for the highly profitable products, we will give priority to allocating the chips to such products. We're doing this on a daily basis. But as for the strategy, this is as far as we could explain. That is all from me. Thank you.
Operator
[Foreign language] [Interpreted] Thank you very much. Sorry, but due to the time restriction, we'd like to make the next question the last for this session today. Thank you. Then last one would be from Nikkei Automotive, Mr. [Honda], please.
Unidentified Analyst
[Foreign language] [Interpreted] Okay, thank you. I hope you can hear me.
Unidentified Company Speaker
[Foreign language] [Interpreted] Yes, we can.
Unidentified Analyst
[Foreign language] [Interpreted] Concerning the Malaysia flooding, and the resurgence of the COVID, from January to February, I believe there you have announced reduced production. Are you doing something, some kind of a specific action with the suppliers considering the impact to the production of the components - the parts and components of the suppliers? So I'm just wondering what you're doing?
Seiji Kuraishi
[Foreign language] [Interpreted] So, basically, what we are doing is, with the - we look - work, depending on the circumstances of the parts suppliers and the semiconductor parts suppliers, of course, if they have some supplies and parts in inventory, we might ask them to forward those to us. But basically, it's up to how we can, we just - all we can do is ask for the optimum allocation with the suppliers for their supplies, in line with where we need the supplies for parts.
Operator
[Foreign language] [Interpreted] Thank you. Thank you Mr. Honda's as well.
Operator
[Foreign language] [Interpreted] Thank you. Thank you Mr. Honda's as well. With this we'd like to conclude our financial results press conference. We have the material on our website, so please refer to it. Once again, thank you very much for your participation and attention today. Thank you.
