ANNUAL
REVIEW
2018
Fiscal year ended
January 31, 2018

Aboutthe Ryoyo Group
Ryoyo Electro Corporation was founded in 1961 as a semiconductor trading company. Since its
foundation, the Company has continued to expand the range of its operations in step with changes
in the electronics industry while maintaining close and functional business relationships withworld-leading suppliers.
Today, Ryoyo Electro has grown into an electronics trading company with both a semiconductor
and device business and an ICT and solutions business, and we are currently focusing on ourInternet of Things (IoT) operations that take advantage of the strengths of these two businesses.
The Company is moving forward with the development of a service-oriented business modelthat offers comprehensive support encompassing everything from semiconductor devices to
networks, cloud computing, servers, and operation and maintenance services. With this businessmodel, we support companies in a broad spectrum of industries in transforming their businessmodels through the introduction of IoT.

VisionWe aim to be a Solution Partner
delivering a lasting impression
for our interconnected smart-society.
Action Policy

VALUE and PRIDE
SloganConnect Everything. With Technology. With Ideas.

The Underlying RYOYO SPIRIT

Change, Challenge, Speed

CONTENTS

01 About the Ryoyo Group

10 Financial Section

02 Message from Management

18 Corporate Data /03 To Our Shareholders
07 Corporate Governance01

Investor Information

Notes on the Scope of This Annual Review
With respect to the contents of this annual review,“the Company” refers to Ryoyo Electro Corporation, while“the Ryoyo Group” refers to Ryoyo Electro Corporation andits consolidated subsidiaries Ryoyo Semicon Corporation,
Ryoyo Electro (Shanghai) Co., Ltd., Ryoyo Electro Hong
Kong Ltd., and Ryoyo Electro Singapore Pte., Ltd.

Message from Management

Kenhachiro Ogawa

Moritaka Nakamura

Chairman andChief Executive Officer

President andChief Operating Officer

The Ryoyo Group operates in the electronics industry, which isGiven the recent business trends and relatively slow prog-

seeing ongoing, brisk investment by companies in the Internet

ress in our IoT business, we instituted a downward revision toof Things, or IoT, field. At the same time, there is a rising

the medium-term management plan’s performance targets forsense of anticipation with regard to the practical application

the fiscal year ending January 31, 2019.

of artificial intelligence and deep learning.
In this environment, we moved forward with the medium-

It was against this backdrop that the Ryoyo Group began
operating under the guidance of a new management teamterm management plan set to conclude with the fiscal year

following the appointment of Moritaka Nakamura as president

ending January 31, 2019. We thus sought to transformand chief operating officer of Ryoyo Electro Corporation on

Ryoyo Electro into a high-value-adding company by implement-

April 26, 2018. The new management team will lead theing the plan’s five basic strategies: 1) expand core businesses

Group in overcoming the current adversity to achieve further

through an IoT approach; 2) strategically focus investments on

growth and improved performance going forward. We lookareas anticipated to contribute to future growth; 3) accelerate

forward to the ongoing support of our stakeholders as we

global strategies; 4) strengthen operating foundations totackle the challenges to come.

achieve ongoing growth; and 5) promote CSR management.
Regardless of these efforts, net sales in the year underreview declined 6.3% year on year, to ¥92.2 billion; operating
income was down 81.7%, to ¥0.2 billion; ordinary income
decreased 72.0%, to ¥0.4 billion; and profit attributable toowners of parent fell 74.1%, to ¥0.2 billion. Factors behind

Kenhachiro Ogawa

Moritaka Nakamura

this outcome included lower sales of semiconductors anddevices resulting from changes in the policies of a semiconductor manufacturer and downward pressure placed on
income by inventory write-downs.

02

To Our Shareholders

Moritaka Nakamura
President andChief Operating Officer

Moritaka Nakamura joined Isetan Co., Ltd., in 1984, where
he gained experience in corporate planning, sales planning,
human resources, and IT strategies. After joining the Company
in May 2017, he was primarily engaged in management
reforms, becoming a managing executive officer in August
2017 and then being appointed president and chief operating
officer of the Company in April 2018.

Greetings. I am Moritaka Nakamura, the new president andbusiness over the course of our history in order to create new

COO of Ryoyo Electro Corporation. I would like to take thisvalue in the IoT field, among others.

opportunity to thank all of our stakeholders for their ongoingsupport of the Ryoyo Group.
The Ryoyo Group strives to provide stakeholders with satis-

The Ryoyo Group recently put forth a new slogan for its
transformation: “Connect Everything. With Technology. With
Ideas.” Guided by this slogan, I will work together with ourfaction exceeding their expectations and to inspire them by

employees as we aspire to make the Group into an entity thatoffering unique value in any era. We see this mission as theis always deemed to have value by the stakeholders that sup-very meaning for our existence.

port us, including our shareholders, customers, and businessTo accomplish this mission, it will be crucial for us to organically merge the strengths we have cultivated in our core

partners. I hope we can look forward to your ongoing support
as we make strides toward this goal.

semiconductor and device business and ICT and solutions

Initiatives for Creating Unique Value
Expand Core Businesses throughan IoT Approach

mobile work innovations,” which involve utilizing ICT and the

The Ryoyo Group’s IoT approach entails a high-value-addedclients engaged in airport handling operations, which often

business model that merges the products and services of its

include traveler services and operational support. In this busi-

core semiconductor and device business and ICT and solutions

ness, we have already made comprehensive proposals forbusiness to help its customers advance their strategies andhelping customers accomplish tasks such as ensuring safety

resolve their issues.

and timely operation. These proposals encompass everything

Although it has taken longer than initially anticipated toactivities, we commenced a business that serves corporate

from on-site confirmation of conditions by stationed Company

launch our IoT field initiatives, we are still committed to steadily

representatives to identify operational issues and preliminary

growing our IoT business into a third pillar of operations.

verification of improvement measures utilizing ICT and IoT

In the year under review, we moved ahead with “field and03

IoT to reform frontline work styles. As one facet of thesetechnologies to the actual introduction of related systems.

New transformation slogan:“Connect Everything.
With Technology. With Ideas.”

Strategically Focus Investments on Areas
Anticipated to Contribute to Future Growth

Investments in the Fiscal Year Ended January 31, 2018
Business and Capital Alliances
Uhuru Corporation

One of the Ryoyo Group’s policies is to step up strategic

Development and provision of solutions based on Uhuru’s

investments in mergers, acquisitions, research and develop-

enebular IoT platform for swiftly transforming customers’

ment, and human resources with the aim of expanding its IoT

proofs of concept into IoT businesses

business and cultivating new strengths. In the year underAfero, Inc.

review, such investments included the commencement ofDeployment of fast, easy, and safe platforms for the non-business and capital alliances with companies possessing

IP devices anticipated to become a growing presence insolutions that will be key to augmenting and expanding thethe IoT market

Company’s IoT business. In addition, we invested in develop-

otta inc.

ment activities for purposes such as bolstering the functionality

Commencement of IoT monitoring services that use bea-of solutions that have already been embraced by customers.

cons to address the social issue presented by a lack ofpeople to look after children and senior citizens
Solutions Development Investment
Increased adoption anticipated for store operation IT portal(work order management system) currently installed at drugand other stores in conjunction with the proliferation ofcloud technologies
Start of development activities for expediting transition fromproof of concept to practical service in relation to the environmental data collection and monitoring technologies ofLibelium Comunicaciones Distribuidas S.L.

04

To Our Shareholders

Accelerate Global Strategies

company to launch a business that will entail the rental of
forklifts and other transporting equipment and the provision

Our business relocation support services, which have tradi-of factory automation solutions.

tionally been a pillar of overseas operations, are facing a major
turning point brought about by the transference of commercial
rights and the expansion of customers’ production areas. We
are currently working to accommodate customers shifting

Network for Offering
Integrated Domestic andOverseas Support to Customers

production activities overseas by entering new markets, as
we did with the establishment of a base in India in 2016.

DalianAt the same time, we are constructing systems for offering
Shanghaicomprehensive domestic and overseas support in order toGreater China

assist with such business relocations.

Shenzhen

Furthermore, we are preparing for the further expansion ofoverseas operations by accelerating the business activities
that individual overseas bases advance autonomously whileleveraging their unique aptitudes. We have already generated
results through certain projects in our efforts to uncover local
customers and products in the Greater China region, among

Japan

TaipeiHong Kong

India

Bangkok
Sriracha

Bengaluru

ASEAN
Kuala Lumpur
Singaporeothers. In Thailand, meanwhile, we have established a new

CSR Activity
Development of Stable, High-Speed Communications Network around the “Miracle Pine”
Ryoyo Electro was responsible for installing the infrastructure necessary tocreate Wi-Fi access points in the area around the “Miracle Pine,”* which is asymbol of post-Great East Japan Earthquake reconstruction in Iwate Prefecture’s
city of Rikuzentakata.
In the area surrounding the “Miracle Pine,” it has been difficult to install wired
communications infrastructure in conjunction with the reconstruction effort,
resulting in a lack of communications networks. Ryoyo Electro sought toaddress this situation by providing access points through wireless backhaul
technologies, which represent one of the key solutions of its IoT business.
We were thereby successful in creating a stable, high-speed wireless communications network.
This network is currently being used for reconstruction purposes and by tourists. In the future, we hope to utilize the
network to establish infrastructure for disaster prevention centers. One way we envision accomplishing this goal is byinstalling Internet surveillance cameras to monitor waves in real time.
* T he tsunamis that followed the Great East Japan Earthquake washed away approximately 70,000 pine trees in Rikuzentakata. Only one pine tree remained after thetsunamis. Although this tree withered due to the severe damage sustained from exposure to seawater, it has been preserved as a symbol of the effort to reconstruct fromthe impacts of the earthquake.

05

Outlook for the Fiscal Year Ending January 31, 2019
In the fiscal year ending January 31, 2019, we expect that ouroperations. These factors, together with the absence ofsemiconductor and device business will continue to face a dif-certain one-time inventory write-downs recorded in the year

ficult operating environment due to the impacts of changes inunder review, are projected to result in massive improvements

the policies of a semiconductor manufacturer. The ICT andin operating income, ordinary income, and profit attributable tosolutions business, meanwhile, is anticipated to see profitability

owners of parent.

improve in conjunction with the launch of high-value-added
Net Sales

Operating Income /Operating Income Margin

Millions of yenMillions of yen

110,107 112,332

ROE
%

%

2.6

1.9
98,417

2,053

92,234 93,000

1.4
1.1

1,373

0.8
876

1.3

1.1

1,000

1.2

0.3

0.3

251

15.1

16.1

17.1

18.1

19.1

15.1

16.1

17.1

18.1

(Forecast)

19.1

15.1

16.1

17.1

Operating Income

19.1

18.1

(Forecast)(Forecast)

Operating Income Margin

Shareholder Returns
Ryoyo Electro views returning profits to its shareholders as one

we plan to issue an annual cash dividend of ¥60 per share, theof its most important management tasks. With an emphasis

same as in the year under review.

on stable dividends, it is our basic policy to target a total return2016.12017.1

2018.1

2019.1(Forecast)

Annual Cash Dividend (Yen)

30.00

40.00

60.00

60.00

Payout Ratio (%)

100.0

119.2

691.0

183.8

ratio of 100% of profit attributable to owners of parent. In theyear under review, we increased dividend payments by ¥20,
making for an annual cash dividend of ¥60 per share of common stock. For the fiscal year ending January 31, 2019,

Pursuit of Higher Corporate ValueThe Ryoyo Group possesses a wealth of assets, including its

we will grow the Ryoyo Group into a conglomerate that cancommercial rights, client base, operating bases, funds, andwin out against the competition. Furthermore, we hope totalented and dedicated human resources. However, we are

become a valuable partner bridging the gaps between all of ourcurrently failing to take full advantage of these resources, anstakeholders in order to become the driving force behind value

issue that will need to be addressed going forward. By trans-

creation and the provision of inspiration to stakeholders.

forming these assets into effective management resources,

06Corporate Governance
Board of Directors, Audit & Supervisory Board, and Corporate Officers
As of June 1, 2018
Audit & Supervisory Board Member

Yutaka Horikiri
Outside Audit & Supervisory
Board Members

Ryoji Kimura
Tsutomu Nobechi
Kazumi Akiyama
Senior Executive Officers

Kenhachiro Ogawa

Moritaka Nakamura

Takayoshi Oouchi

Masaaki Tanabe

Chairman and CEO

President and COO

Director

Director

Masaaki Tanabe
Kiyoshi Waki
Yoshitsugu Tamakoshi
Yasushi Okazaki
Executive Officers

Seiju Yasuda
Hideki Suzuki
Atuyuki Ohashi
Mitsuru Tsukuba
Kiyoshi Waki

Yoshitsugu Tamakoshi

Yoshiharu Hayakawa

Tsumiko Nakahara

Director

Director

Outside Director(Independent Director)

Outside Director(Independent Director)

Basic Corporate Governance Philosophy

and the articles of incorporation; making important manage-

At the Company, we recognize enhancing corporate gover-ment decisions; and overseeing the execution of operations.

nance as an important task for management. Therefore, inorder to continue to guarantee the soundness, transparency,
and effectiveness of management, as well as increase corporate value and fulfill our responsibilities to society, we are
striving to develop internal systems that ensure the functionalityof corporate governance.

Audit & Supervisory Board Members andAudit & Supervisory Board
The Company is a Company with an Audit & Supervisory
Board as defined by the Companies Act of Japan, whereby
Audit & Supervisory Board Members act independently of

Company Organizations
Outline of the Corporate Governance Framework
Organizational format

Company with Audit & Supervisory Board

Chairman of the Board of Directors

Chairman and CEO

Number of directors

8 (including 2 outside directors)

Number of Audit & Supervisory Board
Members

4 (including 3 outside Audit & Supervisory
Board Members)

Independent officers

2 outside directors and 3 outside Audit &Supervisory Board Members

Number of Board of Directors’ meetings
held during the fiscal year ended
12
January 31, 2018
Number of Audit & Supervisory Board
meetings held during the fiscal year
ended January 31, 2018

In principle, the Board of Directors meets once a month andmet a total of 12 times during the year under review.

directors and oversee directors’ execution of operations.
The Audit & Supervisory Board consists of four Audit &Supervisory Board Members (as of April 26, 2018), of whomthree are outside Audit & Supervisory Board Members.
In principle, the Audit & Supervisory Board meets once a monthand met a total of 12 times during the year under review.
Policy for Appointment of Independent Directors
The Company’s basic policy is to appoint two or more independent directors, and the Company currently has two

12

independent directors. These directors are selected based on
the Company’s own criteria for judging independence in order

Directors and Board of Directors

07

to ensure that they are able to effectively fulfill their role and

The Board of Directors, which consists of eight directors (as of

responsibilities in facilitating the ongoing growth of the Com-

April 26, 2018), of whom two are outside directors, is respon-pany and the medium-to-long-term improvement of its

sible for making decisions as stipulated in laws, regulations,

corporate value.

Directors and Audit & Supervisory Board Member
Directors

Reason for appointment

Kenhachiro Ogawa

Kenhachiro Ogawa has been involved in the management of the Company for many years, possesses broad insight into the overall management ofelectronics trading companies, and has demonstrated strong leadership.

Moritaka Nakamura

Moritaka Nakamura possesses wide-ranging experience, broad insight, and an extensive network of corporate relationships cultivated at his
previous position. At the Company, he has been engaged in the comprehensive management of sales-, technology-, and overseas marketingrelated activities while promoting management reforms. For these reasons, the Company believes that he is capable of contributing to theimprovement of the Company’s corporate value.

Takayoshi Oouchi

Takayoshi Oouchi has extensive management experience across a wide range of areas, including that gained in sales and technology divisions andthe Company’s Corporate Strategy Division, and he possesses broad insight into the overall management of electronics trading companies.

Masaaki Tanabe

Masaaki Tanabe has many years of management experience in the ICT and solutions business and possesses extensive experience and broad
insight into the Company’s business.

Kiyoshi Waki

Kiyoshi Waki has cultivated a wealth of expertise in Japan and overseas through his experience working for a financial institution. Since joining theCompany, he has gained management experience through positions in the Corporate Strategy Division, the Overseas Marketing Division, and theAdministration Division. He also possesses highly specialized knowledge and broad insight into accounting and finance.

Yoshitsugu Tamakoshi

Yoshitsugu Tamakoshi has many years of experience in the semiconductor and device businesses of Mitsubishi Electric Corporation and theCompany, and he thus possesses extensive expertise and broad insight into this business area.

Audit & Supervisory Board
MemberReason for appointment

Yutaka Horikiri

Yutaka Horikiri has accumulated accounting and management experience through his years of service in the Company’s Administration Division
and Corporate Strategy Division and possesses extensive insight related to finance and accounting.

Outside Directors and Audit & Supervisory Board Members
Attendance at meetingsof the Board of Directors

Outside directors

Reason for appointment

Yoshiharu Hayakawa

Yoshiharu Hayakawa possesses expert knowledge as a certified public accountant as well as extensive experience and broad insight as a management consultant. For these reasons, the Company believes that he is suited tohelp strengthen the corporate governance systems and improve the corporate value of the Company.

12/12

Tsumiko Nakahara

Tsumiko Nakahara has specialized expertise with regard to all areas of corporate legal affairs based on her long
history as an attorney and her related scholarly knowledge and experience. For these reasons, the Company
believes that she is suited to help strengthen the corporate governance systems and improve the corporate valueof the Company.

12/12

Attendance at meetings of theBoard of Directors and the
Audit & Supervisory Board

Outside Audit &Supervisory Board Members

Reason for appointment

Ryoji Kimura

Ryoji Kimura possesses specialized insight into all areas of corporate legal affairs based on his long career as
an attorney and his related scholarly knowledge and experience.

12/12

12/12

Tsutomu Nobechi

Tsutomu Nobechi possesses considerable insight into financial and accounting matters gained through his years ofexperience at auditing firms.

12/12

12/12

Kazumi Akiyama

Kazumi Akiyama gained a wealth of insight through his years of employment at central government offices.

12/12

12/12

Board ofDirectors

Audit & Supervisory Board

Criteria for the Selection of Outside Officers
In order to ensure the independence of the candidates it recommends for positions as outside officers (outside directors and outside Audit &Supervisory Board Members), the Company has formulated criteria for the selection of outside officers. Please see the following website for moredetails: http://www.ryoyo.co.jp/english/csr.html

Compensation of Directors and Audit & Supervisory Board Members
In regard to compensation decision policies and calculation methods, compensation amounts for directors and Audit & Supervisory Board
Members are to be less than the upper limit approved at the general shareholders’ meeting. Compensation amounts for directors are decided
based on the responsibilities of directors and their individual performance as well as the performance of the Company as a whole. Compensation amounts for Audit & Supervisory Board Members are decided by the Audit & Supervisory Board.
Compensation by type (millions of yen)
Total compensation

Number of applicable

Basic compensation Stock options

Retirement benefits individuals

Bonuses

Directors (excluding outside directors)

123

123

—

—

—

7

Audit & Supervisory Board Members(excluding outside Audit & Supervisory Board
Members)

14

14

—

—

—

1

Outside officers

33

33

—

—

—

5

Note: The amount for compensation of directors does not include the portion paid to directors who serve concurrently as employees.

08Corporate GovernanceAnalysis of Board of Directors’ Effectiveness andResults of Evaluation
The Company implements self-surveys to analyze the overall
effectiveness of the Board of Directors.

prior to or after the fact, for expenses incurred during the execution of
their duties as well as the treatment of other expenses and liabilities
incurred as part of the execution of duties(9) Other systems for ensuring effective auditing by the Audit & Supervisory Board

The most recent survey evaluated the structure of theBoard of Directors, how it is operated, how outside officers

Risk Management Systems

are treated, and other matters. Through this survey, theRisks that may affect our operations include those related toCompany confirmed that the Board of Directors was generally

compliance, the environment, disasters, information security,

functioning appropriately and that it was indeed effective.

product quality, foreign exchange rates, and financial reporting.

Furthermore, the survey indicated that the quality of discus-

Each department maintains effective risk management

sion at Board of Directors’ meetings was improving as seen

systems managed by employees that are responsible for riskin the readiness of members to pose questions and voice

management. In the event that any disruption occurs, these

opinions. At the same time, directors and Audit & Supervi-

employees will guide their department in responding quickly

sory Board Members provided various suggestions throughand effectively to those disruptions in order to minimize thethe survey regarding factors such as the timing of provision

impact on operations. For more information on businessof materials pertaining to Board of Directors’ meetings, therisks, please refer to the following section of the Company’s

medium-to-long-term management issues and other items

corporate website.

requiring examination by the Board of Directors, and the

http://www.ryoyo.co.jp/english/ir-library/business-risk.html

cultivation of mutual understanding between outside officers
and management.

Policy for Proactive Communication with Shareholders

The Board of Directors will discuss these suggestions

The Company endeavors to ensure that disclosure of management

going forward and continue to improve its effectiveness withinformation is conducted accurately, impartially, and promptly.

the aim of creating an ideal corporate governance system.

In addition, we recognize that facilitating mutual understanding
through proactive communication with shareholders and incorpo-

Internal Control Systems

rating feedback from shareholders into management decision

The following are our basic principles for establishing internal

making is crucial to the Company’s ongoing growth and to thecontrol systems. These principles help us maintain systems

medium-to-long-term improvement of corporate value. Accord-

for sound internal control.

ingly, the following provisions have been put in place to support(1) S ystem for ensuring that the execution of duties by Group directors andemployees is in compliance with all laws, regulations, and the articles
of incorporation(2) Items concerning the storage and management of information related
to the execution of duties by directors(3) Rules and other systems for containing the risk of damages to the Group(4) System for ensuring the efficient execution of duties by Group directors(5) System for ensuring the appropriateness of operations undertaken by
the corporate group consisting of Ryoyo Electro and its subsidiaries andfor facilitating reporting to the Company with regard to the execution ofduties by directors and other individuals at subsidiaries(6) Items concerning employees requested by the Audit & Supervisory
Board to serve as assistants, the independence of these employees
from directors, and the effectiveness of the orders issued to such
employees by Audit & Supervisory Board Members(7) System concerning reports submitted by directors and employees of
the Company and by directors, audit & supervisory board members,
and employees of subsidiaries to the Audit & Supervisory Board of theCompany; other systems concerning reports submitted to the Audit &Supervisory Board; and systems for ensuring that individuals issuingsuch reports do not suffer disadvantageous treatment due to reporting(8) Items related to policies concerning the procedures through which
Audit & Supervisory Board Members may receive reimbursement,

09

proactive communications activities.
(1) T he director in charge of the Corporate Strategy Division oversees
shareholder communications activities, receiving assistance from thegeneral manager of the Corporate Strategy Division.
(2) The Corporate Planning Department functions as a venue for communication with shareholders while preparations for communications
activities are advanced through coordination between the Corporate
Planning, General Affairs, and Accounting departments.
(3) E xplanatory forums are held for institutional investors and analysts
twice a year in conjunction with the release of second quarter andannual financial reviews at which we report on and explain current
business conditions and the future direction of the Company.
(4) Systems are in place to ensure that feedback received throughshareholder communications activities is shared with management ina timely manner.
(5) In-house workshops regarding insider information are held and othersteps are taken to ensure the appropriate management of insider
information.
Note: T he Company strives to ensure timely and appropriate disclosure of management
information through its corporate website and other venues.
http://www.ryoyo.co.jp/english.html

Financial Section

Consolidated Financial Highlights
Ryoyo Electro Corporation and Consolidated Subsidiaries
For the years ended January 31, 2018, 2017, 2016, 2015, and 2014

Thousands of
U.S. dollars*Millions of yen

2018.12017.1

2016.1

2015.1

2014.1

2018.1¥  92,234¥  98,417¥ 112,332¥ 110,107¥  97,887$847,826

Gross profit

7,591

8,099

7,852

8,801

8,279

69,778Selling, general and administrative expenses

7,339

6,726

6,976

6,747

6,627

67,467

251

1,373

876

2,053

1,651

2,311

For the YearNet sales

Operating income
Profit attributable to owners of parent

212

822

743

1,683

1,342

1,956

(4,162)

6,874

4,392

467

(1,369)(38,262)¥  78,111¥  77,973¥  76,865¥ 82,937¥  79,893$718,004

64,40464,85963,921

65,583

63,112592,010Net income¥    8.68¥   33.54¥   30.01¥   66.74¥   52.17$   0.08

Total net assets

2,625.66

2,644.10

2,591.70

2,595.83

2,498.70

24.14

Cash dividends

60.00

40.00

30.00

30.00

30.00

0.55

Gross profit margin

8.2

8.2

7.0

8.0

8.5

Operating margin

0.3

1.4

0.8

1.9

1.7

Free cash flows
At Year-End
Total assets
Total net assets
Per Share of Common Stock (Yen / U.S. dollars)

Ratios (%)

Net income margin

0.2

0.8

0.7

1.5

1.4

Equity ratio

82.4

83.1

83.1

79.0

78.9

Return on equity

0.3

1.3

1.1

2.6

2.2

Other Information
Number of shares issued**

24,506,240 24,507,328 24,636,009 25,237,095 25,226,060

Number of employees

498

510

501

510

513

* U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥108.79=U.S.$1.00, the exchange rate prevailing on January 31, 2018.
** Number of shares issued does not include treasury stock.
Notes: 1. The financial section is a translation of the Japanese financial statements. The Japanese version will be used for matters of a legal nature.
2. Unless otherwise noted, figures are rounded down to the nearest million.

Net Sales

Free Cash Flows

Millions of yen

Millions of yen

Total Assets / Total Net Assets
Millions of yen

6,874

110,107 112,332
98,417

97,887

92,234

4,392
79,89382,937

63,112

76,86565,583

77,97363,921

78,11164,85964,404467(1,369)(4,162)

14.1

15.1

16.1

17.1

18.1

14.1

15.1

16.1

17.1

18.1

14.1

15.1

Total Assets

16.1

17.1

18.1

Total Net Assets

10Financial Section

Consolidated Financial Review‌Operating Environment
During the year under review, the fiscal year ended January 31,
2018, the domestic economy saw a recovery in corporate earnings and capital investment as well as in the job market. This
recovery was supported by stable economic growth centered on
the United States and Europe that occurred despite the persistent concerns pertaining to geopolitical risks.
In the electronics industry, where the Ryoyo Group operates,
robust semiconductor demand was present in a wide range ofsectors, which was largely driven by the recovery of industrial
fields. In addition, we witnessed the continuation of brisk investment by companies in the Internet of Things (IoT) field; and thesense of anticipation related to the practical application of artificial
intelligence and deep learning is growing on a daily basis.

‌Results for the Fiscal Year Ended January 31, 2018
Under these conditions, the Ryoyo Group accelerated its initiatives in the IoT field, which have been positioned as part ofits growth strategies. However, changes to the policies ofsemiconductor manufacturers as well as production adjustments
by major customers led to sales decreases in the Group’s
semiconductor and device business. In addition, inventory
write-downs were recorded in reflection of revisions to our plansfor communications network-related operations, which havebeen positioned as one part of our IoT field initiatives.
As a result of these factors, consolidated net sales decreased
6.3% year on year, to ¥92.2 billion; operating income decreased
81.7%, to ¥0.2 billion; and ordinary income declined 72.0%, to¥0.4 billion. Similarly, profit attributable to owners of parent fell
74.1%, to ¥0.2 billion.
Sales by Segment
Semiconductors and Devices
Net sales of semiconductors and devices decreased ¥7.4 billion
year on year, or 12.8%, to ¥50.9 billion.
Sales of products for communications applications decreased
6.3%, to ¥8.1 billion, as the Company ceased dealing in certain
products.
Sales of products for digital consumer electronics fell 27.5%,
to ¥5.8 billion, following a decline in sales of products for use in
televisions and amusement equipment.
Sales of vehicle installations were relatively unchanged year
on year, declining 7.5%, to ¥2.5 billion.
Sales of products for PCs and peripherals decreased 5.8%,
to ¥18.7 billion, due to poor performance in operations targeting
domestic PC manufacturers as well as a decline in sales of
products for use in printers and other peripherals.
Sales of products for industrial and other applications were
down 17.6%, to ¥15.8 billion, primarily due to the impacts ofthe transfer of distribution rights.

11

Sales by Applications
Billions of yen

58.4
8.6
8.0
2.7
19.9

19.2

–6.3%
–27.5%
–7.5%

8.1
5.8
2.5

–5.8%

18.7

–17.6%

15.8

17.1
Communications
Digital consumer electronics
Vehicle installations

50.9

18.1
PCs and peripherals
Industrial and others

ICT and Solutions
Net sales of ICT and solutions increased ¥1.3 billion year on year,
or 3.3%, to ¥41.3 billion.
Sales of PC, server, and network products decreased 5.7%,
to ¥9.4 billion, owing to a delay in the full-fledged launch of an
IoT-related business that exceeded initial projections.
Sales of I/O equipment were down 3.2%, to ¥7.8 billion, as
performance was more or less in line with forecasts, primarily inprinter operations.
Sales of software were up 11.1%, to ¥13.9 billion, as a result ofstrong performance in operations targeting overseas PC manufacturers.
Sales of embedded devices and other products increased
7.8%, to ¥10.3 billion, primarily due to growth in sales ofgraphics-related products.

Sales by Products
Billions of yen

41.3

40.0
10.0

–5.7%

8.0

–3.2%

12.5

+11.1%

9.5

+7.8%

17.1
PC / Server / Network
I/O equipment

9.4
7.8

13.9

10.3

18.1
Software
Embedded devices and others

Sales by Region
Japan
In the year under review, sales to external customers in Japandecreased ¥3.4 billion year on year, or 4.3%, to ¥75.8 billion,
following a decline in sales of semiconductors for industrial
applications and PCs. As a result, operating income in this­regional segment was down ¥1.0 billion, or 86.6%, to ¥0.1 billion.
Asia
Sales to external customers in Asia decreased ¥2.7 billion year
on year, or 14.5%, to ¥16.4 billion, as a result of a decline in salesof products for use in televisions and amusement equipment.
Accordingly, operating income in this regional segment decreased¥48 million, or 36.2%, to ¥84 million.
The figure for operating income presented in the consolidated
statements of income includes operating income from eachsegment as well as from intersegment transactions.

‌Financial Position
Total assets at the end of the fiscal year amounted to ¥78.1
billion, ¥0.1 billion higher than at the previous fiscal year-end.
This was primarily due to an increase in investment securities.
Total liabilities were up ¥0.5 billion, to ¥13.7 billion, mainly due
to an increase in deferred tax liabilities.
Total net assets decreased ¥0.4 billion, to ¥64.4 billion. This
was largely due to a decline in retained earnings.

‌Cash Flows
Cash and cash equivalents totaled ¥13.8 billion at the fiscal
year-end, a ¥5.4 billion year-on-year decrease. Major factors
included outflows for the acquisition of investment securities.
Net cash provided by operating activities came to ¥3.0 billion.
This outcome was a result of income before income taxes of¥0.4 billion being recorded and of working capital declining.
Net cash used in investing activities amounted to ¥7.2 billion.
This was largely because outflows for the purchase of investment securities of ¥12.8 billion offset proceeds from sales ofinvestment securities of ¥4.0 billion.
Net cash used in financing activities amounted to ¥1.2 billion.
Major outflows included cash dividends paid.

‌Returning Profits to Shareholders
Shareholder Returns Policy
The Company views returning profits to its shareholders as oneof its most important management tasks. Accordingly, we return
profits to shareholders while considering the Company’s financial
position and the operating environment, while also retaining
internal revenues sufficient enough to maintain a stable operating
foundation and pursue future business expansion. With a focus
on stable dividends, the Company plans to target a total return(dividend payments and share buybacks) ratio of 100% for theforeseeable future.
Dividend Payments in the Fiscal Year Ended January 31, 2018,
and the Fiscal Year Ending January 31, 2019
For the fiscal year ended January 31, 2018, the Company paid
¥30 per share of common stock for the year-end cash dividend,
making for an annual cash dividend of ¥60 per share of common
stock when combined with the interim dividend. In the fiscal year
ending January 31, 2019, the Company is planning to issue a total
annual cash dividend of ¥60 per share of common stock, comprising an interim dividend and a year-end dividend of ¥30 each.

‌Risks Pertaining to the Company’s Business
Risks that may affect the business performance, stock price, andfinancial condition of the Company include, but are not limited to,the following.
(1)	Abrupt changes in economic conditions(2)	Fall in the price of products(3)	Contracts with suppliers(4)	Fluctuations in foreign exchange rates(5)	Customers moving operations overseas(6)	Country-based risks(7)	Product defects, service problems, and delivery andintellectual property rights issues(8) Natural disasters and other acts of God(9)	Collection of accounts receivable(10)	Disposal and the write-down of inventories(11)	Impairment losses on the write-down of investment securities(12)	Retirement benefit obligations
For more information, please refer to the Company’s
corporate website.
    http://www.ryoyo.co.jp/english/ir-library/business-risk.html

12

Financial Section

Consolidated Balance Sheets
Ryoyo Electro Corporation and Consolidated Subsidiaries
At January 31, 2018 and 2017

Thousands of
U.S. dollars

Millions of yen

2018.12017.1

2018.1

Cash and deposits¥14,040¥19,517$129,056

Notes and accounts receivable–trade25,912

29,291

238,192

AssetsCurrent assets

Securities
Merchandise and finished goods
Deferred tax assets

649

1,000

5,967

10,857

10,582

99,798

497

291

4,575

1,378

1,247

12,672

(2)

(5)

(25)

53,332

61,925490,236

		 Tools, furniture and fixtures, net

81

92

747

		Land

5

5

52

Other
Allowance for doubtful accounts
			Total current assets
Noncurrent assets
Property, plant and equipment

		Other, net

76

63

707

			Total property, plant and equipment

163

161

1,506

Intangible assets

454

630

4,179

21,93013,368201,587

Net defined benefit asset

1,458

1,216

13,411

Other

1,152

716

10,592

Investments and other assets
Investment securities

Allowance for doubtful accounts

13

(381)

(44)

(3,507)

			Total investments and other assets

24,16015,256

222,083

			Total noncurrent assets

24,77816,048

227,768

			Total assets¥78,111¥77,973$718,004

Thousands of
U.S. dollars

Millions of yen

2018.12017.1

2018.1¥ 9,653¥ 9,633$ 88,737

419

205

3,852

Liabilities
Current liabilities
Notes and accounts payable–trade
Income taxes payable
Accrued consumption taxes

87

25

801

Provision for bonuses

205

186

1,890

Other
			Total current liabilities

716

910

6,590

11,082

10,961

101,869

790

778

7,264

1,429

1,162

13,136

405

211

3,725

Noncurrent liabilities
Net defined benefit liability
Deferred tax liabilities
Other
			Total noncurrent liabilities

2,624

2,153

24,125

			Total liabilities

13,706

13,114125,994

Capital stock

13,672

13,672

125,673

Capital surplus

13,336

13,336

122,589

Retained earnings

36,287

38,244

333,556

Treasury shares(2,707)(3,649)(24,890)

60,58861,602556,928

3,013

2,446

27,704

Net assets
Shareholders’ equity

			Total shareholders’ equity
Accumulated other comprehensive income
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Remeasurements of defined benefit plans
			Total accumulated other comprehensive income

(0)

(0)

(8)

430

528

3,954

313

222

2,882

3,756

3,197

34,532

59

59

550

			Total net assets

64,40464,859592,010

			Total liabilities and net assets¥78,111¥77,973$718,004

Subscription rights to shares

14

Financial Section

Consolidated Statements of Income andConsolidated Comprehensive Statements of Income
Ryoyo Electro Corporation and Consolidated Subsidiaries
For the years ended January 31, 2018 and 2017
Thousands of
U.S. dollars

Millions of yen
Consolidated Statement of Income

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Provision of allowance for doubtful accounts
Salaries and bonuses
Provision for bonuses
Retirement benefit expenses
Rent expenses
Depreciation
Other
		 Total selling, general and administrative expenses
Operating income
Non-operating income
Interest income
Dividend income
Purchase discounts
Gain on valuation of investment securities
Gain on investments in partnership
Other
		 Total non-operating income
Non-operating expenses
Sales discounts
Loss on redemption of securities
Foreign exchange losses
Commission fee
Loss on abandonment of noncurrent assets
Other		Total non-operating expenses
Ordinary income
Extraordinary income
Gain on sales of investment securities
		 Total extraordinary income
Extraordinary losses
Loss on sales of investment securities
Loss on valuation of investment securities
Loss on valuation of shares of subsidiaries and associates
Loss on liquidation of subsidiaries and associates
Other
		 Total extraordinary losses
Income before income taxes and minority interests
Income taxes-current
Income taxes-deferred		Total income taxes
ProfitProfit attributable to owners of parent

2018.12017.1

2018.1¥92,234
84,643
7,591¥98,41790,3188,099$847,826
778,048
69,778

229
2,900
205
119
345
224
3,314
7,339
251

7
2,750
187
136
334
249
3,059
6,726
1,373

2,108
26,666
1,886
1,097
3,178
2,066
30,466
67,467
2,311

73
157
8
–
55
19
313

65
111
10
66
71
28
353

674
1,447
76
–
509
178
2,884

7
–
99
9
12
3
132
432

4
50
108
11
0
5
180
1,545

72
–
912
86
117
35
1,221
3,974

242
242

105
105

2,227
2,227

33
28
–
124
–
186
488
507
(231)
275
212
¥   212

100
104
99
–
4
309
1,341
396
122
519
822
¥   822

307
261
–
1,142
–
1,711
4,491
4,664
(2,129)2,535
1,956$  1,956

212

822

1,956

567
(0)
(98)
91
559
772

1,360
(9)
(214)
38
1,175
1,998

5,217
(5)
(905)
838
5,144
7,100

772
–

1,998
–

7,100
–

Consolidated Comprehensive Statement of Income

Profit attributable to owners of parent
Other comprehensive income
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Remeasurements of defined benefit plans, net of tax
		 Total other comprehensive income
Comprehensive income(Details)
Comprehensive income attributable to owners of parent
Comprehensive income attributable to non-controlling interests

15

Consolidated Statements of Changes in Net Assets
Ryoyo Electro Corporation and Consolidated Subsidiaries
For the years ended January 31, 2018 and 2017

Millions of yen
Shareholders’ equity

Accumulated other comprehensive income

From February 1, 2017
to January 31, 2018

Capitalstock

CapitalsurplusRetainedearnings

Treasury
stock

Total
shareholders’equityBalance at January 31, 2017
Changes of items during
the period
Dividends from surplus
Profit attributable to ownersof parent
Purchase of treasury shares
Disposal of treasury shares
Retirement of treasury sharesNet changes of items otherthan shareholders’ equity
Total changes of items during
the period
Balance at January 31, 2018¥13,672¥13,336¥38,244¥(3,649)¥61,602(1,225)
212
(2)
0
944

0
(944)

–
¥13,672–¥13,336(1,956)¥36,287942¥(2,707)

Valuationdifferenceonavailablefor-salesecurities

Deferred
gains orlosses onhedgesForeigncurrencytranslation
adjustment

Remesurements ofdefinedbenefit plans

Subscription
rights tosharesTotal
net assets¥2,446

¥(0)

¥528

¥222

¥59

¥64,859(1,225)(1,225)

212
(2)
0
–

212
(2)
0
–

(1,014)¥60,588

567

(0)

(98)

91

–

559

567
¥3,013

(0)
¥(0)

(98)
¥430

91
¥313

–
¥59

(454)
¥64,404

Millions of yen
Shareholders’ equity

Accumulated other comprehensive income

From February 1, 2016
to January 31, 2017

Capitalstock

CapitalsurplusRetainedearnings

Treasury
stock

Total
shareholders’equityBalance at January 31, 2016
Changes of items during
the period
Dividends from surplus
Profit attributable to ownersof parent
Purchase of treasury shares
Retirement of treasury sharesExercise subscription rights
to sharesNet changes of items otherthan shareholders’ equity
Total changes of items during
the period
Balance at January 31, 2017¥13,672¥13,336¥38,997¥(4,178)¥61,827(859)–¥13,336

Deferred
gains orlosses onhedgesForeigncurrencytranslation
adjustment

Remeasurements ofdefinedbenefit plans

Subscription
rights tosharesTotal
net assets¥1,085

¥9

¥ 743

¥183

¥ 72

¥63,921

(859)

(859)

(703)

(200)
703

822
(200)
–

822
(200)
–

(13)

25

12

12

822

–
¥13,672

Valuationdifferenceonavailablefor-salesecurities(753)¥38,244528¥(3,649)(224)¥61,602

1,360

(9)

(214)

38

(12)

1,162

1,360
¥2,446

(9)
¥(0)

(214)
¥ 528

38
¥222

(12)
¥ 59

937
¥64,859

Thousands of U.S. dollars
Shareholders’ equity

From February 1, 2017
to January 31, 2018

Capitalstock

CapitalsurplusRetainedearnings

Treasurystock

Balance at January 31, 2017$125,673 $122,589 $351,541 $(33,549)
Changes of items during
the period
Dividends from surplus(11,263)Profit attributable to ownersof parent
1,955
Purchase of treasury shares(19)
Disposal of treasury shares
00Retirement of treasury shares(8,678)
8,678
Net changes of items otherthan shareholders’ equity
Total changes of items during
the period––(17,985)8,659
Balance at January 31, 2018
$125,673 $122,589 $333,555 $(24,890)

Accumulated other comprehensive income

Total
shareholders’equityValuationdifferenceonavailablefor-salesecurities

Deferred
gains orlosses onhedgesForeigncurrencytranslation
adjustment

Remesurements ofdefinedbenefit plans

Subscription
rights tosharesTotal
net assets$566,254$22,487$(2)$4,858$2,044$550$596,191(11,263)(11,263)

1,955
(19)
0
–

1,955
(19)
0
–

(9,326)$556,928

5,216

(5)

(904)

837

–

5,144

5,216
$27,704

(5)
$(7)

(904)
$3,953837$2,881–$550(4,181)$592,010

16

Financial Section

Consolidated Statements of Cash Flows
Ryoyo Electro Corporation and Consolidated Subsidiaries
For the years ended January 31, 2018 and 2017

Thousands of
U.S. dollars

Millions of yen

2018.1

2018.1

I. Cash flows from operating activities
Income before income taxes
Depreciation and amortization
Loss (gain) on sales and retirement of noncurrent assets
Loss (gain) on investments in partnership
Foreign exchange losses (gains)
Increase (decrease) in provision
Increase (decrease) in net defined benefit liability
Interest and dividends income
Loss (gain) on redemption of securities
Loss (gain) on sales of investment securities
Loss (gain) on valuation of investment securities
Loss on valuation of shares of subsidiaries and associates
Loss on liquidation of subsidiaries and associates
Decrease (increase) in notes and accounts receivable–trade
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable–trade
Increase (decrease) in accrued consumption taxes
Other, net
SubtotalInterest and dividends income received
Income taxes refund (paid)
Net cash provided by (used in) operating activities¥   488
226
12
(55)
(17)
253
0
(230)
–
(208)
28
–
124
3,308
(291)
92
62
(604)
3,189
231
(346)
3,074

II. Cash flows from investing activities
Payments into time deposits
Proceeds from withdrawal of time deposits
Purchase of securities
Proceeds from redemption of securities
Purchase of property, plant and equipment and intangible assets
Proceeds from sales of property, plant and equipment and intangible assets
Purchase of investment securities
Proceeds from sales of investment securities
Proceeds from redemption of investment securities
Payments of loans receivable from subsidiaries and associates
Collection of loans receivable from subsidiaries and affiliates
Proceeds from distribution of investment in partnerships
Purchase of insurance funds
Other, net
Net cash provided by (used in) investing activities(1,028)
1,050
(552)
2,000
(81)
0
(12,876)
4,080
–
(72)
99
153
(39)
28
(7,236)(1,180)
1,015
–
1,470
(193)
0
(3,149)
1,801
300
(33)
–
169
(3)
1
198

(9,453)
9,659(5,074)
18,384(754)
0(118,360)
37,511
–
(662)
910
1,411
(359)
264
(66,522)

III. Cash flows from financing activities
Cash dividends paid
Purchase of treasury shares
Proceeds from sales of treasury shares
Net cash provided by (used in) financing activities(1,222)(2)
0(1,224)

(857)
(201)
–
(1,058)(11,240)(19)
1(11,259)

IV. Effect of exchange rate changes on cash and cash equivalents
V. Net increase (decrease) in cash and cash equivalents
VI. Cash and cash equivalents at beginning of period
VII. Cash and cash equivalents at end of period
17

2017.1(62)(5,449)19,343¥ 13,893¥ 1,341 $   4,491
249
2,080
1
117
(71)
(509)
(10)
(160)
66
2,333
(24)
8
(176)
(2,121)50–(4)(1,920)
38
261
99
–
–
1,142
3,879
30,412486(2,683)
381
852
19
570
569
(5,554)
6,894
29,319
190
2,131
(409)
(3,189)6,675
28,261

(8)
(576)
5,807
(50,096)
13,535
177,802¥19,343 $ 127,706

Corporate Data / Investor Information
As of January 31, 2018

Corporate Name
Ryoyo Electro Corporation

Composition of Shareholders

Address
Konwa Building, 1-12-22
Tsukiji, Chuo-ku, Tokyo
104-8408, JapanPhone+81-3-3543-7711
Fax+81-3-3545-3507
Websitehttp://www.ryoyo.co.jp/
english.html
Date of Incorporation
February 27, 1961
Paid-in Capital¥13,672 million
Authorized Shares
119,628,800

20.3%

Treasury stock

8.6%

Securities companies, etc.

0.8%

%

3,863

Mitsubishi Electric Corporation

2,246

9.17

SHC Corporation

2,118

8.65

Japan Trustee Services Bank, Ltd. (Trust account)

2,083

8.50

The Master Trust Bank of Japan (Trust account)

983

4.01

Sheep Shokai Co.

523

2.14

15.77

Nippon Life Insurance Company

409

1.67

Japan Trustee Services Bank, Ltd. (Trust account 5)

349

1.42

Japan Trustee Services Bank, Ltd. (Trust account 2)

300

1.22

Japan Trustee Services Bank, Ltd. (Trust account 9)

298

1.22

Note: Calculations for the ownership percentages above did not account for the 2,293,760 shares of treasury stock.

2,500

Transfer Agent
Mitsubishi UFJ Trust andBanking Corporation

21.5%

Other corporations

CGML PB CLIENT ACCOUNT/COLLATERAL

Shareholders
6,211

Ticker Code8068

Individuals and otherThousandsof shares

Stock Price Chart

Stock Listing
Tokyo Stock Exchange,
First Section

27.0%
21.8%

Major Shareholders

Shares Issued
26,800,000

Stock Trading Unit
100 shares

Foreign corporations and other foreign investors
Financial institutions

Stock Price
Yen

Nikkei Stock Average
Yen

25,0002,000

20,0001,500

15,0001,000

10,000

Trading Volume
Thousands of shares

4,500

3,000

1,500

0

2

3

4

5

6

7

8

16.1

9 10 11 12

1

2

3

4

5

6

7

8

17.1

9 10 11 12

1

2

3

4

5

6

7

8

9 10 11 12

1

18.1

Caution on Forward-Looking Statements
The contents of this annual review that are not historical fact represent projections based on expectations and plans for the future. These projections contain elements of risk anduncertainty. As a result, forward-looking statements made in this annual review may differ from actual results and performance.
Notes on Performance Figures in This Annual Review
The performance figures used in this annual review, including those from previous fiscal years, are based on Ryoyo Electro Corporation’s audited Japanese financial reviews.

18

EMS 576112 / ISO 14001
FS 576113 / ISO 9001
IS 511311 / ISO 27001• Registered Offices
Headquarters
Branch offices (Sendai, Matsumoto, Omiya,
Hachioji, Yokohama, Nagoya, Osaka)
Sales offices（Kyoto, Fukuoka)
Ryoyo Semicon Corporation
Ryoyo Security Service Corporation
In consideration for the environment, this annual review uses paper that has been approved by the
Forest Stewardship Council (FSC). Additionally, this annual review is printed using highly biodegradable
vegetable oil ink.

Printed in Japan