Q2/FY2016 (57th)
Results Briefing

August 31, 2016

(Tokyo Stock Exchange‐8068)

http://www.ryoyo.co.jp

1Overview

Date ofestablishment: February 27, 1961

Capital: 13.672 million yen

Represented by : Kenhachiro Ogawa– Chairman & CEO
Takayoshi Oouchi– President & COO

Domestic
network: Sendai, Koriyama, Matsumoto,Omiya, Hachioji, Yokohama, Nagoya,Kyoto, Osaka, Fukuoka

Overseas
network: Dalian, Shanghai, Shenzhen, Hong
Kong, Taipei, Bangkok, Kuala
Lumpur, Singapore, Silicon Valley

Domestic: Ryoyo Semicon,
subsidiariesRyoyo Security Service,iStream

Number ofemployees: (As at July 31, 2016)
Consolidated: 507
Non-consolidated: 452*Whole group: 603

Business areas: ◇Sales of semiconductors/devices◇Sales of ICT products (HW/SW)◇Sales of embedded devices◇Various engineering support◇Various services

Sales by product (H1/FY2016)40%
ISO 9001 / 14001 / 27001 :All offices in Japan (excluding the satellite office)60%
Semiconductors/Devices
ICT/Solution2

H1/FY2016 Business results3

P/L: Sluggish sales but profit generally as per the plan(Unit: 100 million yen)FY2015
H1FY2016
Original
H1planYoY/ Plan

Comments

587

530

493

(16.0% )(7.0% )

46.2

43.5

41.1

(11.1% )(5.5% )

(7.9% )

(8.2% )

(8.3% )

35.0

35.5

33.2

(5.2% )

(6.4% )

11.2

8.0

7.9

(29.6% )(1.5% )

(1.9% )

(1.5% )

(1.6% )

3.2

0.0

0.1

(95.7% )

―

14.4

8.0

8.0

(44.2% )+0.2%(2.5% )

(1.5% )

(1.6% )

Extraordinary income

2.70.00.3(90.6% )―Income before income taxes

17.1

8.0

8.3(51.5% )+3.3%Income taxes

6.1

2.7

2.6(56.9% )(2.9% )

11.0

5.3

5.6(48.6% )+6.5%(1.9% )

(1.0% )

(1.1% )

Sales
Gross profit

SG&A
Operating income

Non-operating income
Ordinary income

Profit attributable to ownersof parent

Significantly decreased insemiconductors/devices
Higher gross profit rate thanks to the lower
proportion of low-margin transactions which
compensate the effects of exchange
fluctuation (yen appreciation)
Decreased in both labor cost and otherexpenses
Lower than the previous year due to lesssales, but generally as per the plan
Decreased in gain from investment securities
Higher than the original plan thanks to an
extraordinary income
Decreased in gain on sale of investment
securities

4Sales by segment: Slump in semiconductors/devises(Unit: 100 million yen)
FY2015 FY2016

Diff

YoY

Comments

H1

H1587

493

(94) (16.0% )Semiconductors/Devices379

295(85) (22.3% )Communications

9643(53) (55.4% )Large-scale orders for LC which contributed tosales of the previous year ended

Digital consumer electronics andother home electronics

4942(7) (14.6% )Decreased in products for TVs, digital cameras
and white goods

Vehicle installation

2015(6) (28.7% )Decreased transactions related to vehicle
installation such as monitors and car navigation

By application

Total

PC and peripherals

107

99(8)

Industrials and others

107

97(11) (10.2% )207

198(9)

PC/Server/Network

5950(9) (14.8% )Affected by postponed launch of new products aswell as a drop in prices of hardware products

I/O equipment

3742+5 +13.2%

Expanding business related to printers

Software/Embedded devices

111

106(5)Generally going sideways in software products,
but for embedded devices decreased transactions
for terminals in the finance industry

ICT/Solution

By productDespite slight decrease in products for PCs,
mainly affected by decrease in those for
peripherals such as HDD
Affected by weak demand due to slowdown ofChinese economy as well as Kumamoto
Earthquake(7.2% )

(4.4% )

(4.8% )

5

Quarterly change in sales: Decline for two quarters in a row
 Semiconductors/Devices:
With the end of some transactions as well as sluggish demand, the situation remainstough ICT/Solution:
The transaction volume of I/O equipment which was strong in the last quarter has
been reduced, and demand from customers closing the account in March isreturning to normal(Unit: 100 million yen)

292
277
263

299

287

270

277
260

254
239

188

159
161

118

Q1

195

173

185

174
170

147

102

96

104

105

102

90

103

107

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

FY2014FY2015148

Semiconductors/Devices

91

ICT/Solution

Q2

Q3

Q4

FY2016

6

Segment information (sales by region)(Unit: 100 million yen)

587

Decline in both Japan and Asia
493482399

Japan Japan:
Mainly affected by the end of somelarge-volume transactions, but the both
semiconductors/devices andICT/solution are by and large in a slump Asia (Singapore, Hong Kong, Shanghai):
Increased in products for cell phones
and printers, but decreased in those forindustrial equipment and TVs
10493

FY2015FY2016

H1H1Asia

7

B/S: Change from FY2015 (as at January 31, 2016)(Unit: 100 million yen)

Notes and accounts
receivable - trade753

135 963493
175 28

335

632
100

Other currentassets

40

35

Fixed assets

146

144

As at Jan. 31,
2016

Assets112

Liabilities andnet assets

Inventories

Continue to maintain thestrong financial position

Other liabilities

298
639

Assets

Notes andaccounts payable- trade Cash in hand and at banks :Considerably increased due to lesscapital fundNet assets

 Accounts receivable / Inventories /Accounts payable :Decreased in line with less sales
 Net assets :Implemented a buyback(150,000 shares)

Liabilities andnet assets

Cash in hand andat banks769

 Equity ratio : 83.9%

As at Jul. 31,
2016

8FY2016 Business plan9

P/L (Plan): No change from the original plan(lower sales but higher profit)
 Sales:
Lower than the previous year due to the end of large-volume orders as well as thecurrent uncertain situation
 Gross profit / Operating income / Ordinary income / Net profit:
Higher than the previous year, since the impacts of loss on abandoned inventory andloss on inventory revaluation which were recognized in FY2015 will be eliminated(Unit: 100 million yen, %)H1(Actual)
493

FY2016H2(Plan)607

Total(Plan)
1,100

78.5

41.1

50.9

92.0

(7.0% )

(8.3% )

(8.4% )

(8.4% )

69.8

33.2

37.8

8.8

7.9

(0.8% )

Ordinary income
Profit attributable toowners of parent
ROE

1.1%Sales
Gross profit
SG&A
Operating income

FY2015
Total(Actual)
1,123

Diff

YoY
(23)

(2.1% )

+13+17.2%

71.0+1+1.8%

13.1

21.0

+12+139.5%(1.6% )

(2.2% )

(1.9% )

11.0

8.0

13.0

21.0

+10

+91.6%

7.4

5.6

8.3

13.9+6+87.0%(0.7% )

(1.1% )

(1.4% )

(1.3% )
2.2%10Semiconductors/Devices : No change from the original plan(Unit: 100 million yen)

-5,100 million yen (-7.1%):
End of some large-volume orders

723
672
153
117
101

103

Communications
Digital consumer
electronics and other
home electronics

3730

Vehicle installation

211

210

PC and peripherals Communications:
Sales will be decreased due to the endof some large-volume orders
 Digital consumer electronics and other
home electronics:
Sales will remain stable mainly in
products for TVs and game machines PC and peripherals:
The weak demand for PCs will becompensated by printers and otherperipherals
221212

ActualPlan

FY2015FY2016

Industrials and others

 Industrials and others:
The future situation is still uncertain,
especially for businesses where endusers are in China
11

ICT/Solution : Breakdown revised(Unit: 100 million yen)

428

428

132

122+2,800 million yen (+6.9%):
Sales expected to be increasing in all
product groups

400

PC/Server/Network

115

70

88

78

I/O equipment PC/Server/LAN:
Delay in launch of new products as well
as a deeper-than-expected drop in
product prices
 I/O equipment:
In addition to higher sales in products
for printer in H1, new orders for
signage-related products expected

215

218

218

ActualOriginal plan

Revisedplan

FY2015

Software/Embeddeddevices

 Software/Embedded devices:
The increasing sales in embedded
devices will compensate the downward
trend in products for PCs

FY201612

Return to shareholders

 Dividend policy:
Allocation of profit earning through our business activity is one of our mostimportant matters. While we seek to maintain the stable management base andexpand business, we also seek a return for shareholders based on our financial
condition and business performance.
In FY2015 and the subsequent periods, we will target 100% of the payout ratio toa net profit of each period through dividend payment and payback
Dividend per share
Interim(Q2)

Year-end

Total

Payoutratio(Forecast)-

20 yen40 yen70.6%

Unknown(Actual)20 yen---150,000
shares

FY2015(Actual)15 yen15 yen30 yen100.0%-FY2014(Actual)15 yen15 yen30 yen44.9%-FY2016

Buyback

13

Medium-term actions

14

Basic policy of the medium-term actions

Basic policy

Contribute to customers’ higher value added bycreating new strengths through the IoT approachBasicstrategy I

Expand the core businesses throughthe IoT approach

Basicstrategy II

Strategically focus investments on
growing markets

Basicstrategy IIIAccelerate the global strategy

Basicstrategy IVStrengthen the business base forsustainable growth15

New value

Our goals

Value to value chains• Proposing new businessmodels• Developing solutions• Matching with partners

Conventional
valueValue• Exploring ventures

Direct connection withcustomers’ issues / strategies
Made-to-order / Irreplaceable
Expertise / Diversity

Value to supply chains• Distributorships / traderights• Logistics functions• Inventory functions• Financial functions

Low-cost operation
Scale expansion

Time16

Our initiatives on IoTStage 1

HopStage 2

StepStage 3

Jump

Up to FY2013

FY2014 – FY2015

FY2016 (current year) – FY2018

With development of a new
business model focusing onembedded, we remained rather atrader

With growth strategy focusing on IoT, we’ve
shifted from a trader to a solution-based
service provider

We’ll achieve a transformation into a high-value
added company by exploring both existing andnew projects

Built system to share IoT approachcompany-wideSetup of “IoT Sales HQ”

Launched IS(*) business
Launch WiFi solution services
Enhance IoT products(including capital tie-up)

Enhance F&Mi services

Accelerated business tie-up
Enhance IoT services

Develop “IoT Starter Kit”
Develop “IoT” into the third core business(*) IS: Intelligent System
A concept to create “valuable data” byanalyzing sensor information collected byembedded devices and integrating it withother information

M2M NetworkBigData

M2M Network17Features of WiFi solution

Multi-channel WiFi backhaulsystem

High-performance configuration which constantly monitors the backhaul communication
status in both directions will prevent deterioration in throughput due to hopping

SwitchAccesspoint

Excellent throughput even with mulple
APs connected with WiFi hopping

SwitchSwitch

WiFi interactive
Access WiFi interactive Access
communication point communication point

Hop

Hop

Hop

Throughput features during WiFi hopping (40MHz bandwidth)

Conventional system18Enhance F&Mi services
・Improve through ICT areas which have not been covered by ICT yet

Field & Mobile Work Innovation

・Stimulate customers’ potential needs to be directly connected withtheir businesses through original servicesEnhanced services

Target customers

o R/PORTAL(Work Order Management System)o Multilingual service applicationso Business messengeretc.

Wholesalers/
retailers

Transportation

Amusement

Food & Beverage

Tourism

MedicalHotels

Travel agency

Observe customer’s
operation tounderstand their issues

Turn to IPs and offer
throughout the market
Manufacturing

Observation

Development
Offer software notavailable in the market

Verification
Evaluation

Make a hypothesis tocreate solution- Main element of IoT -19

Issues on IoT last mile RYOYO’s working onIssue (1)• Edge-side energy

WiFi / LoRa solution

Issue (2)• Communication cost

Gateway / DeepLearning

Field

Offer total support to the embedded market
from the R&D phase to IO board design,software optimization

Devices

On-Premises
Server

WiFi / LoRasolution

HQInternet

IoT
Gateway

Network
Switches

Cloud
Infrastructure

Edge

Cloud
20

Summary<H1/FY2016 Business results>
Lower sales and profit than the previous year, but generally as per theoriginal plan in terms of operating income, ordinary income and net profit
Payback of 150,000 shares (approx. 200 million yen) implemented. 5 yen
per share added to H1 dividend.

<FY2016 Business plan>
While business environment remains severe and sales have been weak,
we’ll target to a considerable increase in each level of profits by improving
the gross margin rate.

<Medium-term actions>
After a wide range of initiatives on IoT, we’re now expecting “fruits” fromthem. Developing IoT to the third core business will make us a high-value
added company.

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About this report Notice
The business forecast and other forecasts contained in thisreport are based on certain assumptions, which we deemed
reasonable at the time of release, and the actual results may
differ due to the economic environment or various otherfactors.

- Contact Corporate Strategy Office
Corporate Planning Department
Ryoyo Electro Corporation
Tel: +81-3-3546-5088
e-mail: irmanager@ryoyo.co.jp

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