Results Briefing for the First Half (Feb.–Jul.)of the Fiscal Year Ending January 31, 2021

September 1, 2020

Ryoyo Electro Corporation
First Section, Tokyo Stock Exchange (Ticker Code: 8068)
https://www.ryoyo.co.jp/en
Copyright 2020 © RYOYO Electro Corporation

AgendaTender Offer to Repurchase
Treasury Stock
Overview of the First Half of the
Fiscal Year Ending January 2021
Business Plan for Fiscal YearEnding January 31, 2021
Forging an Image ofa New Trading Company
Examples of Only RYOYO Initiatives
1

Copyright 2020 © RYOYO Electro Corporation

Tender Offer toRepurchase Treasury Stock2

Copyright 2020 © RYOYO Electro Corporation

Capital policy through the years
Equity ratio: Over 80%

Gradual expansion of shareholder
returns

Low capital efficiency
ROE*1

EPS*2

FY2020/1 Result: 2.1%

FY2020/1 Result: ¥53.06

Fiscal Year

Shareholder
Return Policy

AnnualDividendper Share

Total Payout
AmountPayoutRatio

FY2021/1*3

DOE:*4 5.0%

¥180

¥4.41 billion

289.1%FY2020/1

DOE: 3.0%¥80¥1.97 billion

150.8%¥60¥1.47 billion

144.2%¥60¥1.47 billion

691.0%¥40¥0.98 billion

119.2%¥30¥0.74 billion

100.0%FY2019/1
FY2018/1

Total capitalturnover

FY2017/1

FY2020/1 Result: 1.39x

Total return
ratio
100%

FY2016/1

Although recently price-to-book ratio(PBR) has been above 1x, stock value
has been sluggish over the long term.

Payout ratio of over 100% levels
continues, and payout ratio in the current
period is expected to be close to 400%.

*1. Return on equity*2. Earnings per share

Fundamentally review capital policy
3*3. Total payout and payout ratio for
FY2020/1 are forecasts as of the
beginning of the period*4. Dividend on equity

Copyright 2020 © RYOYO Electro Corporation

Overview of tender offer to repurchase treasury stock

Ryoyo resolved to implement repurchase of treasury stock
based on fundamental review of capital policy toward
improving capital efficiency.
 Number of shares to be
repurchased:

7,357,800

 Unit purchase price:¥2,990 Total repurchase amount:¥22 billion

 Repurchase period:

From September 1, 2020 to
October 14, 2020

(Percentage of total number of issued
shares: 27.45%)(30 business days)

 Settlement commencement date:November 6, 2020

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Copyright 2020 © RYOYO Electro Corporation

Achieve ROE level that exceeds cost of capital stock

Indicators in Final Year of Current Three-Year Plan
If capital policy continues as is

If treasury stocks are repurchased

ROE

FY2022/1 forecast: 3.6%

ROE

FY2022/1 forecast: 5.7%

EPS

FY2022/1 forecast: ¥86.70

EPS

FY2022/1 forecast: ¥123.53

Total capital
FY2022/1 forecast: 1.50x
turnoverTotal capital
FY2022/1 forecast: 1.77x
turnover Amid forecasts for improvement ineach indicator, get ROE to a levelthat exceeds cost of capital stock
recognized by Ryoyo.
Note: Cost of capital stock calculated by Ryoyo isapproximately over 5% (Calculated as 5.17% as
of FY2020/1)

5

Copyright 2020 © RYOYO Electro Corporation

Annual dividends in current period: No change from¥180 per share Scheduled dividend for the current fiscal year remains unchanged; year-end dividend:¥120 per share (annual dividend: ¥180 per share).
 Regarding the dividend plan for next fiscal year (FY2022/1), which will be the final yearof the three-year plan, we plan to maintain dividends, aiming at the current return policyof “DOE: 5.0%.”
 Payout ratio in FY2022/1 forecasts to fall under 100%, and we expect to be able to pay
dividends within the range of net income.
Dividend per Share (Yen)InterimYear-End

Full YearFY2022/1 Forecast

60

60

120

‒

120

180

Forecast
FY2021/1
ResultFY2020/1

Result60(Ordinary dividend: 60)

40(Ordinary dividend: 60)(Ordinary dividend: 120)
(Commemorative dividend: 60) (Commemorative dividend: 60)

PayoutRatio

DOE

97.1% 5.5%
396.4% 7.6%
‒

‒

‒

‒

40

80

6

Copyright 2020 © RYOYO Electro Corporation

150.8% 3.2%

Overview of the First Half of the Fiscal
Year Ending January 2021

7

Copyright 2020 © RYOYO Electro Corporation

Assumptions for full-year performance and situationsin the first half of the fiscal year
Full-year performance forecast at the beginning of year
 Sales are expected to decrease year on year due to the impact of businessthat ended in the previous period.
 Initial forecasts were disclosed in early March without factoring the impact
of COVID-19 which was difficult to predict at that time.
Q1 (February‒April) trends Income decreased year on year within the predicted line, as factors forincome decline other than the impact of COVID-19 had already been taken
into account at the beginning of the fiscal year.
 Growth in other businesses helped to offset some COVID-19 impacts
including decreases in clients’ operation rates.
Q2 (May‒July) trends Corporate IT investment plans also saw suspensions and revisions as
economic and business activities stagnated after the emergency
declaration.
 The impacts became clear in ICT in addition to semiconductors anddevices8

Copyright 2020 © RYOYO Electro Corporation

Monthly sales trends
 Sales slowed from April, when the emergency declaration was
issued. Sales in June fell 31.1% year on year to ¥6.11 billion.
 In July, net sales were up for the first time in four months to over ¥8billion, which is still a 16.5% decline year on year; market recovery
was modest.
(Billion yen)

8.67

8.71
8.06

7.62
6.46

Feb.
2020

Mar.
2020

May
2020

Apr.
2020

Q1

6.11

Jun.
2020

Jul.
2020

Q2

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Copyright 2020 © RYOYO Electro Corporation

Profit/Loss: Secured operating profit in Q2
 Net sales:

Decrease was forecast from the beginning of the year, and scale ofdecrease was exacerbated due to COVID-19 impacts.

 Gross profit: In the first half, profit margin exceeded 10% for the first time in 23 years.
Q2 (May‒July) recorded operating profit despite the significant impact of
COVID-19 due to increase in gross profit margin and decrease in selling,
general and administrative expenses.

 Operating
income:FY2020/1
H1(Billion yen)

FY2021/1

YoY Change

Q1

Q2

H1

54.2

25.0

20.6

45.6

-8.6

-15.9%

Semiconductors & devices

27.6

11.0

10.4

21.4

-6.2

-22.3%ICT & solutions

26.7

14.0

10.2

24.2

-2.4

-9.2%

5.03

2.52

2.14

4.66

-0.37

-7.3%

(%)

9.3%

10.1%

10.4%

10.2%

Selling, general and administrative expenses

3.97

2.01

1.91

3.92

-0.05

-1.2%

Operating income

1.06

0.51

0.23

0.74

-0.32

-30.2%

2.0%

2.0%

1.1%

1.6%

1.14

0.53

0.31

0.84

-0.30

-26.4%

2.1%

2.1%

1.5%

1.8%

0.80

0.37

0.21

0.58

-0.22

-27.1%

1.5%

1.5%

1.0%

1.3%

Net sales

Gross profit(%)
Ordinary income(%)
Profit attributable to owners of parent
(%)

10

%

Copyright 2020 © RYOYO Electro Corporation

Factors for change from previous year
 Some factors for income decline, such as withdrawal from low-profit projects and cancellationof agency contracts, have been taken into account at the beginning of the fiscal year.

 The impact of COVID-19 brought about widespread effects due to shortages of goods, clients’lower operating rates, sluggish final demand, and revisions to IT investment plans.
 The impact of COVID-19 in the first half: net sales were down ¥6.7 billion and operating
income was down ¥510 million.

Net Sales

Operating Income(Billion yen)

-4.8

(Billion yen) Factors for decrease(already taken into account)

Factors for decrease-0.11 (already taken into account)

-6.7

-0.51

+2.9
54.2

FY2020/1
H1
COVID-19 Other
Impact increase/(estimated) decrease

45.6

1.06

FY2021/1
H1

FY2020/1
H1
11

+0.30



Other
COVID-19
increase/
Impact(estimated) decrease

0.74

FY2021/1
H1
Copyright 2020 © RYOYO Electro Corporation

Semiconductors & devices
H1 net sales: ¥21.4 billion (-22.3% year on year) Along with shortages of goods and clients’ lower operating rates due to the impact of
COVID-19, business confidence worsened in a wide range of areas including PCs andperipherals and industrials.
 The effects of business that completed in the first half remained, and sales of PCs andperipherals significantly decreased.
 Digital consumer electronics were strong for TVs thanks to clients’ market share growth andincrease in the number of products used.
(Billion yen)

Net Sales by Product
FY2021/1
H1

FY2020/1
H1

Analog & power
semiconductors

Logic
semiconductors

4.7

8.6

5.6

RF & optical semiconductors↓
Memorysemiconductors LCDs Other electronic devices

1.7 1.5 1.9 3.0
11.3

21.4

3.1 1.3 2.6

3.6

27.6

Net Sales by Application
PCs &Digital consumer Vehicle
Communication electronics installation peripherals
FY2021/1
2.7
5.4
1.0
4.9
H1

FY2020/1
H1

3.7

4.3

1.5

Industrials & others

7.4

9.6
12

21.4

8.5

27.6

Copyright 2020 © RYOYO Electro Corporation

ICT & solutions
H1 net sales: ¥24.2 billion (-9.2% year on year)
 Impact of COVID-19 brought about suspension and review of corporate IT investment plans.
 Acquisition of new contracts also decreased due to cancellations of exhibitions, seminars,
and other events
 In the software sector, replacement demand due to end of support for Windows 7 continued.
 Most recently, security related sales leads for networks and other applications haveincreased.

Net Sales by Product
PC/Server/Network
FY2021/1
H1

FY2020/1
H1

4.9

5.9

(Billion yen)I/O equipment

2.8

Embedded devices & others

Software

11.1

3.8

10.6

13

24.2

5.5

6.4

26.7

Copyright 2020 © RYOYO Electro Corporation

Balance sheets & cash flows: Comparison withprevious fiscal year-end (January 31, 2020)
Cash Flows

Balance Sheets(Billion yen)(Billion yen)

78.1
73.0
Cash anddeposits

12.4

12.0
4.0

Trade
receivables

22.9

8.7
3.0

Trade
payablesOtherliabilities

28.2

Other current
assets

12.6
1.3

61.3
62.1

23.7

Non-current
assets12.4

Cash flows
from operating
activities+5.28

Cash flows
from investing
activities

19.5
Inventory
assets

As of January
31, 2020

12.4

Net assets

2.6

+6.25

Cash flows
from financing
activities-1.01

Exchange
gain/loss

-0.04

15.5
Assets Liabilities
and netassetsAssets Liabilities
and netassets

As of January 31, 2020

As of July 31, 2020

As of July 31,
2020

14

22.9

Copyright 2020 © RYOYO Electro Corporation

Business Plan for Fiscal Year Ending
January 31, 2021

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Copyright 2020 © RYOYO Electro Corporation

Profit/Loss: Gradual market recovery is expected in thesecond half
 Revised earnings forecast taking into account the impact of COVID-19 that was not factored in at
the start of the year, in addition to the first half results, information on current business trends, andpredictions.
 Gradual market recovery is expected in the second half, but sales will not reach previous year's
results.
 Maintain gross profit margin above 10% following the first half.
 Incorporate costs for capital policy review, including repurchase of treasury stock, as non-operating
expenses.
FY2020/1
Full Year(Result)(Billion yen)

FY2021/1

YoY Change

Change frominitial plan

%

%

H1
(Result)

H2(Result)

Full Year(Revised)

Full Year(Initial)

108.5

45.6

49.4

95.0

105.0

-13.5

-12.5%-10.0

Semiconductors & devices

54.3

21.4

26.1

47.5

53.0

-6.8

-12.6%-5.5 -10.4%

ICT & solutions

54.2

24.2

23.3

47.5

52.0

-6.7

-12.4%

-4.5

-8.7%

10.36

4.66

5.04

9.70

10.70

-0.66

-6.4%

-1.00

-9.3%

9.5%

10.2%

10.2%

10.2%

10.2%

Selling, general andadministrative expenses

8.21

3.92

4.08

8.00

8.50

-0.21

-2.5%

-0.50

-5.9%

Operating income

2.15

0.74

0.96

1.70

2.20

-0.45

-21.1%-0.50 -22.7%

(%)

2.0%

1.6%

1.9%

1.8%

2.1%

2.19

0.84

0.56

1.40

2.20

-0.79

-36.0%-0.80 -36.4%

(%)

2.0%

1.8%

1.1%

1.5%

2.1%

Profit attributable to owners of parent
(%)

1.30

0.58

0.46

1.04

1.53

-0.26

-20.2%-0.49 -32.0%

1.2%

1.3%

0.9%

1.1%

1.5%

Net sales

Gross profit(%)

Ordinary income

16

-9.5%

Copyright 2020 © RYOYO Electro Corporation

Semiconductors & devices
Annual net sales forecast: ¥47.5 billion (-12.6% year on year)
 Sales of semiconductors for TVs were strong in the first half and are expected to grow further
in the second half.

 Acquisition of re-production projects for products whose production was discontinued (spotprojects).
 Recovery of demand for base stations in the communications sector is expected due tospread of 5G, etc.

Net Sales by ProductAnalog & power
semiconductors
Revised plan
8.6
FY2021/1
Initial plan
10.9
FY2020/1

Results(Billion yen)
RF & optical semiconductors
Memory ↓Other electronic devices
semiconductors LCDs

Logic semiconductors

21.4
19.3

12.2

8.6

53.0

5.5 2.4 4.8 7.6

54.3

5.8 3.8 4.6

21.9

Net Sales by Application

Digital consumer Vehicle
Communication electronics installation

PCs &peripherals

Revised plan
FY2021/1
Initial plan

6.0

14.5

2.0 10.8

7.0

12.3

2.7

Results

7.1

10.2

FY2020/1

6.5 47.5

3.6 3.4 4.0

3.1

17

Industrials & others

47.5

14.2

14.5

16.5

16.7

17.2

53.0
54.3

Copyright 2020 © RYOYO Electro Corporation

ICT & solutions
Annual net sales forecast: ¥47.5 billion (-12.4% year on year) Contracts for server products and other products that were postponed from the first half are
expected to contribute.

 Sluggish demand for office-use printers.
 Software sales will gradually decrease due to special demand reaction.
 Decrease in acquisition of new contracts due to exhibition, seminar, and other event
cancellations.

Net Sales by Product
PC/Server/Network I/O equipment
Revised plan

10.8

5.7

Software20.0

Embedded devices & others

47.5

11.0

FY2021/1
Initial plan

12.1

6.7

20.8

FY2020/1 Results

11.7

7.1

23.7

18

12.4
11.7

52.0
54.2

Copyright 2020 © RYOYO Electro Corporation

Forging an Image ofa New Trading Company

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Copyright 2020 © RYOYO Electro Corporation

Three-year business plan: The final year targets remainunchanged

FiscalYear

ReformPhase

FY2018/1

FY2019/1

FY2020/1

FY2021/1

FY2022/1

Preparatory
Stage

Reform Phase 1

Reform Phase 2

Management
Reform Project

Net sales: Return to ¥100 billion
Operating margin: over 2%

Net sales: ¥110 billion
Operating income: ¥3.0 billion

Companywide:
Identify rootissuesEach division:
Identify rootissues

FY2023/1

Three-Year Business Plan Significant
environmental
changes due to
COVID-19

 Face reality Analyze &hypothesize
 Expedite businesscycles Changemanagement
structure Reform company
organization(introduce business
unit system) Reform corporate
culture Shift to two Partner with Stylez
business divisions
Corp.
 Reform HR systems  Implement
Productivity
extensive
improvement project
repurchase of First patenttreasury stockacquisition
 Enhance
governancestructure20 Become a company
that can deliver selfsustained growth Expand solutions
and Only Ryoyo
businesses

Copyright 2020 © RYOYO Electro Corporation

Current business environment for semiconductor
companies
Market structure

Business structure

 Sales depend on clients’ sales trends
and supplier competitiveness Decreasing domestic demand Limited overseas development

 Functions provided free of charge or at
low prices
 Enhanced technical resources
increase costs

Earnings structure Low profitability with operating margin in the 2% range, even withexpansion of business scale Same for overseas mega-distributors
We cannot create more than a temporary life extension measure
without solving this issue

Ryoyo’s Vision
To become a new trading company with a highly profitablestructure that is unprecedented in this industry by maintaining
close contact with clients and creating unique added value
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Copyright 2020 © RYOYO Electro Corporation

Become a new trading company through Only RYOYO
approach
Only RYOYO
approach Resolve client issues by combining various products and services from aroundthe world Make proposals with a client-first focus and an eye on the end-users beyond theclient Refrain from jumping into unknown areas where probability of success is low
Clients

Products and services
around the world

Only RYOYO

Supplier

Market segment

Client-first

Added value
Supplier

Added value

Supplier

ClientResolving clientissuesClientEnduser

Cluster of needs = Issues we must solve

Image of a new trading
company
Entry to clients

Exit for profit

Semiconductors &devicesValue chain and Ryoyo’s position
Clients

Clients

Clients

Clients

Clients

End-users

Semiconductors

ModulesCircuitboards

Products

Systems/infr
astructure

Services

Solutions

Trading company which realizes theprocess shown above with highprofitability

Evolution of semiconductors leads to changes in services
Integrate technical and client information at each stage to establish
strength22

Copyright 2020 © RYOYO Electro Corporation

Ryoyo’s Vision
A new trading company which is the best in customer satisfaction
 The best in making added-value proposals with unique strengths in ICT and IoT/AI Collaboration with partners who share our vision, values, and strategy
 High profitability that is unprecedented in the electronics industry

FY2025/1
Preparatory Stage ‒ Reform Phase 1
 Launch Management Reform Project
 Face reality and identify root issues

FY2022/1

 Reform organization/HR systems, enhance
governance structure Net sales: over ¥100 billion; operating margin 2.0%

FY2020/1
Reform Phase 2
 Become a company that can deliver self-sustained growth Strengthen structure and functions to expand solutions business
FY2018/1

 FY2022/1 targets

23

Net sales: ¥110 billion; operating income: ¥3 billion

Copyright 2020 © RYOYO Electro Corporation

Shift to “solutions partner”
Strengthen structure and functions for expanding solutions business (fromedge devices to cloud services) for resolving customer and market issues,
instead of mere pursuit of scale

Edge devices

Network

Cloud

Semiconductors & devices business

Solutions business

Shift to solutions business with devices as starting point,
and provide value unique to Ryoyo with an awarenessof end-user needs

Invest management resources in solutions business thatstarts with ICT system and cloud to provide value thatexceeds customer expectations

Connect via technology and information
Strategic Technology Development Division and Strategic Sales& Marketing Division

Consider alliances that share vision, pride, and values
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Copyright 2020 © RYOYO Electro Corporation

Purpose of partnership with Stylez Corp.
 To cover business areas that Ryoyo could not address previously by increasing personnel forsystem and development.

 To expand our field of business to resolve client issues and simultaneously shift to a highly
profitable business model Proportion of technical personnel in the Ryoyo Group: 16%  25%
 Accelerate solution development for Ryoyo’s three target markets (medical, FA, retail)

Edge devices

NetworkCloud (on-premise)

Merchandising, cross-selling

Communications, security,
merchandising, construction

Infrastructure development,
application development,
monitoring, maintenance, operation
services

Ryoyo’s Strengths

Stylez’ Strengths

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Copyright 2020 © RYOYO Electro Corporation

Ryoyo line cards + Stylez technologies
RYOYO

StylezPrimary agent for AI/IoT leaders includingIntel, MS, NVIDIA, HP, and Quectel

A rich track record of development
projects, high-quality products, and R&Dexpertise accumulated through directtransactions with clientsIntel

Microsoft

Servers, network equipment
Cloud, embedded boards, OS

Departing from a product-oriented business model

Advancing platform & SaaS construction

NVIDIA

Hewlett Packard
QuectelPCs, workstations

AI, image processing

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Examples of Only RYOYO Initiatives

27

Copyright 2020 © RYOYO Electro Corporation

Embrace the “Only RYOYO” Challenge:
Start of RYOYO DaaS service provision
Total support from PC installation to operation and maintenance; transition from “owning” to “using”
 Sustains high performance by enabling use of the latest PCs and software without purchasingthem Enhanced maintenance and setting services enable reduction of IT department tasks
 Support is also available for Ryoyo’s original business support application
Business support
application
developed by Ryoyo

Basic services＋
PC rental

OS and otherinitial settings

HardwaremaintenanceUser support

Target markets

Retailers

Office use
28

Food service
Copyright 2020 © RYOYO Electro Corporation

Embrace the “Only RYOYO” Challenge:
New speech recognition solutions: Tolphin next
Automatic report creation combining speech recognition technology
and chatbot technology
 Speech only = Automatically create report without using
hands (by utilizing Ryoyo’s patented technology)
 Talk (voiced) content is converted to text in real time,and can be shared with the team

Chatbot supports creation

Bot outputs
reportAutomated guidanceIntercom voice input

Report completed• Speech recognition technology• Report creation template

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Copyright 2020 © RYOYO Electro Corporation

Embrace the “Only RYOYO” Challenge:
One-stop, end-to-end support from proposal to maintenance

ProposalDesign/Kitting

Hearing/advice
System configuration
supportProjector

Installation
DeliveryConstruction
Transport/installation

Application
development
Kitting

Maintenance
MaintenanceMonitoring
Storage/warehousing

Multifunction
printer

Resolves client issues through one-stop,
end-to-end support

ServerWorkstation
Digital signage

Transport: Registration completed as a First Class Consigned Freight
Forwarding Business (July 2020)

30

Copyright 2020 © RYOYO Electro Corporation

Embrace the “Only RYOYO” Challenge:
Ryoyo Group holds eight registered patents (21 applications) Four patents obtained by end of fiscal 2019 after starting full-fledged efforts
in 2018
 Four new patents obtained in the current fiscal year, increasing the numberof registrations to eight
Patent #5

Automatic Report Generating Method, Equipment and System by speech
Recognition

Patent #6

Easy Learning Method of Voice and IR (Infrared) Control Commands

Patent #7

Double-Strike Prevention System for Injection Molding Machines

Patent #8

Full Support Method, Program and Equipment for the Facilitator to Control the
Meeting Effectively and Efficiently

31

Copyright 2020 © RYOYO Electro Corporation

Summary Tender Offer to Repurchase Treasury Stock• Ryoyo resolved to implement tender offer for treasury stock based on fundamental
review of capital policy(Number of shares to purchase: 7,357,800 Total amount: ¥22 billion)• ROE is expected to be 5.7% in FY2022/1, which is a level that exceeds the cost ofcapital stock recognized by the Company
 Current period performance• In the first half, the impact of COVID-19 became clear in Q2, but profitability
improved and operating profit was secured• We revised annual forecasts that did not factor in COVID-19 impact at the
beginning of the year Forging an Image of a New Trading Company• No changes to the main strategy ideas and target indicators of the current threeyear business plan
• Become a new trading company with unique strengths in ICT and IoT/AI anda highly profitable structure that is unprecedented in the electronics industry
32

Copyright 2020 © RYOYO Electro Corporation

About this report

Note
The business results and forecasts for the future contained in this presentation
are based on certain assumptions deemed reasonable at the time of release.
Actual results may differ from the original forecasts due to economic conditionsand various other factors.

Contact
Corporate Planning Dept., Corporate Strategy Div.
Ryoyo Electro Corporation
Tel: +81-3-3546-5088
E-mail: irmanager@ryoyo.co.jp

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Copyright 2020 © Ryoyo Electro Corporation