FY2016 (57th)
Results Briefing

March 10, 2017

(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
Number of
employees: (As at January 31, 2017)
Consolidated: 498
Non-consolidated: 444*Whole group: 596

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

Certification

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

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

Domestic: Ryoyo Semicon,
subsidiaries
Ryoyo Security Service,
iStreamSales by product (FY2016)

41%
59%

： ＩＳＯ ９００１ / １４００１ / ２７００１
Semiconductors/Devices
ICT/Solution

2

FY2016 Business results3External business environments

 Domestic economy:o The appetite of capital investment and the recovery in consumer
spending are still weak; ando Different uncertainties such as exchange fluctuations, and global
economy and political situation, are emerging.

 Business performance in the private sector is going to be affected
directly and/or indirectly.
 Electronics industry:o The sign of recovery such accelerated movement towards practicaluse of IoT (Internet of Things) is going to be observed;o The semiconductors/devices segment is being affected by slowdownof Chinese economy as well as Kumamoto Earthquake; ando The ICT segment is facing less appetite in IT infrastructure investment
but enjoying stable growth in services, supports and software
products.
4

P/L :
Significantly lower sales but higher profits than the previous year
(Unit : 100 million yen)
FY2015
Actual

FY2016
Original pan Revised plan
(Announced (announced
on Mar 9)
on Nov 29)

ActualYoY

Comments
Mainly affected by a significant decrease in

1,123

1,100

970

984

(12.4%) semiconductors/devices

78.5

92.0

81.3

81.0

+3.1%

(%)

(7.0%)(8.4%)(8.4%)(8.2%)

SG&A

69.8

71.0

67.8

67.3

8.8
(0.8%)

21.0(1.9%)

13.5(1.4%)

13.7(1.4%)+56.6%

1.7(21.3%)

15.5(1.6%)+41.0%

Sales
Gross profit

Operating income(%)
Non-operating income
Ordinary income
(%)

2.2
11.0
(1.0%)

21.0(1.9%)

13.5(1.4%)

Decreasing logistics and other expenses as(3.6%) well as labor cost

1.3

(2.0)

―

Income before
income taxes

12.2

13.4

+9.7%

Income taxes

4.8

5.2

+8.3%
+10.7%

Extraordinary income

Profit attributableto owner of parent
(%)
ROE

7.4

13.9

8.5

8.2

(0.7%)
1.1%(1.3%)
2.2%(0.9%)
1.3%(0.8%)
1.3%

Improved profits both in terms of amountand rate thanks to loss on abandoned
inventory and loss on inventory revaluation

Recognized loss on valuation of investment
securities and shares of subsidiaries andassociates

5Sales by segment: Slump in semiconductors/devises(Unit: 100 million yen)

FY2016FY2015

Original planRevised plan

Actual(Announced (Announced
on Mar 9)
on Nov 29)

ActualSemiconductors/Devices

1,123
723

1,100
672

970
580

984
584

Communications

153

117

89

86

Sales

YoY

Comments(12.4%)(19.2%)

By Application

Ended of large-volume orders which contributed to

Digital consumer electronics
and other home electronics

101

103

82

80

(21.2%)

Vehicle installation

37

30

28

27

(26.7%)

PC and peripherals

211

210

190

199

(5.9%)

Industrials and others

221

212

191

192

(13.0%)

400

428

390

400

(0.0%)ICT/Solution
PC/Server/Network
By product(43.5%) sales of the previous year and below the plan due to

I/O equipment
Software
Embedded devices
and others

115

132

95

100

70

78

80

80

118

111

123

125

97

107

92

95

decrease in yields in some projects
Slowing down in products for TVs and gamemachines, our core products, since H2Generally as planned despite the end of someprojects
Remains sluggish with lower sales than theprevious year in products for both PCs andperipherals
Affected by Kumamoto Earthquake andpostponement of some projects, while expected tobe recovering in H2

Focusing on high-profitability projects, such asservices and supports, to compensate a sharp drop
(13.0%)
in unit price due to the smaller number of largevolume projects
Exceeding the previous year with a contribution of+14.2%
large-volume projects in the printer segment
Stable demand from enterprisers despite the+5.5%
original plan where lower sales were expected
Significantly growth in graphic products, but(1.8%)
shrinking in terminals for financial business6

Quarterly change in sales :Increase for the first time in the past four quarters
 Semiconductors/Devices:
Hovering around 14 billion yen in all quarters without significant fluctuations
 ICT/Solution:
Increased from Q3 to Q4 in all segments and the total sales were also second
highest in the past three years(Unit: 100 million yen)

277

159

118

Q1

292
263

161

102

Q2

299

287

270

173

188

195

185
170

96

104

Q3

Q4

FY2014

277
260

105

Q1

102

Q2

254

174

90

103

Q3

Q4

FY2015

147

107

Q1

239

255

237

143

148

146

91

90

Q2

Q3

Semiconductors/
Devices111
ICT/Solution

Q4

FY2016

7

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

Decline in both Japan and Asia

1,123
984

904
792

Japan

 Japan :Mainly affected by the end of somelarge-volume transactions, but thesemiconductors/devices segment are
by and large in a slump
 Asia(Singapore, Hong Kong, Shanghai, Bengaluru) :Decreased in products for embedded
products for terminal in financebusiness as well as semiconductors for
TVs and industrial equipment
219

192

FY2015FY2016Whole year

Whole year

Asia

8

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

780

769

Notes andaccounts
receivable trade

135

96
34

335

195

40
146

160

As at Jan. 31,
2016

AssetsOther current
assets106
25

Liabilities andnet assets

112

Assets Cash in hand and at banks :Considerably increased due toless capital fund, despite higher
dividend and payback
649

Inventories

Continue to maintain thestrong financial position

Other liabilities

293
639

Fixed assets

96
35

Liabilities andnet assets

Cash in handand at banks

Notes andaccounts
payable - trade

As at Jan. 31,
2017

Net assets

 Accounts receivable payable :Decreased in line with less sales
 Net assets :• Implemented a shares buybackin H1• Increased in valuation difference
on available-for-sale securities
 Equity ratio :
83.1%

9

FY2017 Business plan10

P/L (Plan) : IoT business contributes to both sales and profits
 Sales:
While the semiconductors/devices segment has remained sluggish, we can
expect the contribution of IoT business which will be launched with a fullrange scale from H2 onwards
 Operating income:
Expected to be higher than the previous year due to an improvement of thegross profit rate contributed by IoT business which will be launched with afull-range scale which compensates higher SG&A
(Unit: 100 million yen, %)FY2016
Total(Actual)Sales
Gross profit
SG&A
Operating income
Ordinary income
Profit attributable to owner of parent
ROE

H1(Plan)FY2017
H2(Plan)

Total(Plan)

Diff

YoY

984

480

520

1,000

+16

+1.6%

81.0

41.0

45.5

86.5

+5.5

+6.8%

(8.2%)(8.5%)(8.8%)(8.7%)

67.3

34.5

36.5

71.0

+3.7

+5.5%

13.7

6.5

9.0

15.5

+1.8

+12.9%(1.4%)(1.4%)(1.7%)(1.6%)

15.5

7.0

9.5

16.5

+1.0

+6.8%

8.2

4.5

6.5

11.0

+2.8

+33.7%(0.8%)(0.9%)(1.3%)(1.1%)

1.3%

1.7%

11

Semiconductors/Devices (sales by application)(Unit: 100 million yen)

-3.4 billion yen (-5.8%) over theprevious year:
Significant decrease in products
for industrials

584
550
86
95
80
27

70
25

Communications
Digital consumer
electronics andother home

Vehicleinstallation

199
215

192

145

ActualPlan

FY2016FY2017

PC andperipherals

Industrials andothers Communications:Improved suppliers’ yields incommunication module businesses
 Digital consumer electronics and other
home electronics:
Decreased in products for TVs and gamemachines, our core products PC and peripherals:
Increasing in both PCs and peripherals
 Industrials and others:
Significantly decreasing due to atransfer of the distribution rights as wellas production adjustments by somecustomers

12

ICT/Solution (sales by product)(Unit: 100 million yen)

450
400
125

PC/Server/
Network PC/Server/Network:
Growing along with IoT projects

100
80

I/O equipment

80

125

Software120

ActualPlan

FY2016FY2017

 I/O equipment:
In addition to a contribution of largevolume projects, the demand forsignage-related products will be stable Software:
The PC market is going to be bottoming
out and the demand from enterprises
will remain stable since FY2016

125

95

+5.0 billion yen (+12.5%) over theprevious year:
Expected growth in IoT business

Enbedded devices
and others

 Embedded devices:
Graphic products which haveadvantages in terms of AI and Deep
Learning will be growings
13

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 FY2017 and the subsequent periods, we will target 100% of the total return
ratio to the profit attributable to owner of parent of each period through dividend
payments and share buyback
Dividend per share
Interim(Q2)

Year-end

Total

Payoutratio

Sharebuyback

FY2017(Forecast)

30 yen30 yen60 yen133.7%―FY2016(Actual)20 yen20 yen40 yen119.2%

150,000
shares(*) If the actual business results exceed the plan, we will consider additional paybacks or dividend increase.600,000

FY2015(Actual)15 yen15 yen30 yen100.0%

shares14

Medium term actions

15

Revision of the medium-term business plan

No change in the basic policy and strategies
Accelerate a shift to the business model focusing on highvalue added, rather than scale, and increase the profit rate
and then the profit (amount)

Revised the FY2018 Business plan16

No change in the basic policy and strategies

Basic policy

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

Expand the core businesses throughthe IoT approachBasicstrategy II

Strategically focus investments on
growing markets

Basicstrategy III

Accelerate the global strategy

Basicstrategy IV

Strengthen the business base forsustainable growth17

Revision of the business plan

Revised the targets in the medium-term business planannounced in August 2015
- Based on conservative consideration on changes in external
environments and other factors Sales

Operating income(Original
plan)
1,500

(Originalplan) 5.0%

(Originalplan) 50.0

-40 billion yen(-26.7%)-2.4 billion yen(-48.0%)

1,100
984

ROE

-2.3 pt

1,000

26.0

13.7

2.7%

15.5

1.7%
1.3%

FY2016(Actual)

FY2017(Plan)FY2018(Plan)FY2016(Actual)

FY2017(Plan)FY2018(Plan)FY2016(Actual)

FY2017(Plan)FY2018(Plan)

18

Major factors of revisions of the business plan

Changes in external environments

 Japan’s semiconductor market which is more serious than expected Increasing uncertainties in global economy (e.g. slowdown inemerging countries, political uncertainties in US and EU)◆ Breakdown of revisions of the business plan
○ Existing businesses:-28 billion yen(Major factors)
 Slump in industrials-targeted businesses mainly for China
 Transfer of the agency due to changes by semiconductor makers intheir business policies
 Switching business strategies in ICT hardware business- Drop in product unit price, shift to cloud computing Strategic withdrawal from low-profitability businesses- Focus resources on other businesses○ IoT business:-12 billion yen

19Expanding core businesses by an IoT approach

Self-contained
Collaboration
Demand creation
Involvement in business models

Expand core businesses(semiconductors and ICT)

Cross-selling
Legacy businesses
Level 1

Level 2

Level 3

Level 4

Level 5

Level 6

Existing
businesses
Sale of products

Consolidation ofchips to boards
Establishment ofservers + network

Paying a certain
role in customers’
products orservices(maintenance orvalue-added
services)

Contribution tocustomers’
problem solution,
value creation andstrategyachievement

Sharingbusiness
profits (riskand profit
sharing)

Value chain leader
Exclusive gain of
profits
Entry to new business
area

20

Accelerating the shift to IoT: “Customers = Partners”

B to B to

Eco-system

E or C

Partner
IT consulting

HardwareElement technology

SIer/NIer

Communication /Network

SoftwareData center

Maintenance service
providers

Traffic
infrastru
cture

Robot

Home
facilities

Audio

Hospital/ Welfare

Schools

Homeelectric

Customer
Customer
service

Operational
efficiency

Nursing /CaringHealth care

Sales
promotion

Amusement

Comfortable
space

Education

Service21

Opening an office in Bengaluru, India
3 core regions ofoverseas business<<Changes in business environments surrounding us>>
Dalian
日本
Japan

China

India

ASEAN

Shanghai

ShenzhenTaipeiHong Kong
Bengaluru
Bangkok

Immediate challenges• Shrinking domestic market due to sluggish
private consumption• Drastic changes in the semiconductor market• Globalization of customers’ business (local
production for local consumption)

Kuala Lumpur
Singapore

October 2016, opened
the 10th overseas officein Bengaluru, India

Bengaluru<Acceleration of global strategies>o Reinforce the business structure by
expanding business bases in Asiao Create demands for the ICT/solution businessin Asia based on our core business, mainly
semiconductors/devices
o Explore the Indian market drastically growing

22Effective use of funds

 Return to shareholders:
Payout ratio: No change in the policy (100%) for time being Despite the revised target ROE, keep 5% from a medium- andlong-term perspective and eye further dividend increase in FY2018

 M&A:
Considering M&A to expand the IoT business, and targets include “Sler,”“Nler” and “a software company”
 Allocating “15 billion yen” to strategic investments covering FY2021
 Operational reform:
As part of working style renovation, considering IT investments which
contribute to better productivity per capita as well as work flow renovationand introduction of new communication tools

23

Continuous reinforcement of corporate governance Basic corporate governance policy:
We are working on organization building where corporate governance ismaintained effectively, recognizing that bettering corporate governance is oneof the most important business issues in order to ensure health, transparent
and efficient operations, maximize corporate values and subsequently
contribute to the society
Board of directors

FY2015 - Increased the number of outside directors
FY2014 - Revised the operating officer system- Increased the number of representative directors- Invited an outside director
FY2013- Established the criteria for the selection of outside
officers
FY2012 - Introduced the stock option scheme
FY2011FY2010FY2009FY2008 - Abolished the retirement pay for directors
FY2007

Operating officers
Actingas director
as well

External

Ratio ofexternal

6

2

25.0%

1

3

6

4

6
4

2
1

25.0%
20.0%

1
1

3
3

7
10

4
2

5

1

16.7%

1

3

8

5
6
6
7
11
7

0
0
0
0
0
0

―
―

1
1
1
1
1
2

3
3
3
3
3
2

8
4
3
5
4
10

Internal- Assessed effectiveness of the board of directors
FY2016 - Comply with all 73 principles of corporate
governance Code

Audit committee

―
―
―
―

Internal

External

24

Summary<FY2016 Business results>
Sales were significantly lower than the previous year due to a prolonged
slump in semiconductors/devices
On the other hand, profits exceeded the previous year as special factors ineach segment have disappeared<FY2017 Business plan>
Increased sales by growth in ICT which compensates a prolonged slump in
semiconductors/devices
Target an increase in profits at all levels by improving the profit rates withlaunch of IoT business<Medium-term actions>
Revised the targets in the medium-term business plan (up to FY2018)
announced in August 2015
Sales: 150 billion yen  110 billion yen,
Operating income: 5.0 billion yen  2.6 billion yen,
ROE: 5.0%  2.7%

25

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

26