FY2017 (58th)
Results Briefing

March 13, 2018

(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 ofemployees: (As at January 31, 2018)
Consolidated: 510
Non-consolidated: 452*Whole group: 597

Domesticnetwork: Sendai, Koriyama, Matsumoto,
Omiya, Tokyo (head office), Hachioji,
Yokohama, Nagoya, Kyoto, Osaka,Fukuoka

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

Domestic: Ryoyo Semicon,
subsidiaries
Ryoyo Security Service,iStream

Sales by product (FY2017)
Business areasCertifications: ◇ Sales of semiconductors/devices◇ Sales of ICT products (HW/SW)◇ Sales of embedded devices◇ Various engineering support◇ Various services: ISO 9001 / 14001 / 27001

45%

55%
Semiconductors/Devices
ICT/Solution

2

FY2017 Business results3

P/L: Lower sales and profits than the previous year and the plan
(Unit: 100 million yen)
FY2016
ActualFY2017
Plan(As of Aug. 31)

YoY

VS. PlanComments

Actual984

1,000922(6.3%)(7.8%)

81.0

88.5

75.9

(6.3%)(14.2%) Lower than the previous year and the

8.2%

8.9%

8.2%

67.3

73.0

73.4

+9.1%

+0.5%

13.7

15.5

2.5

(81.7%)(83.8%)

1.4%

1.6%

0.3%

1.7

1.0

1.8

+4.9%

+80.9%

15.5

16.5

4.3

(72.0%)(73.8%)

1.6%

1.7%

0.5%

Extraordinary income

(2.0)

0.0

0.6―

―

Income before income taxes

13.4

16.5

4.9

(63.6%)(70.4%)

5.2

5.5

2.8(46.9%)(49.9%) accounting increased the effective tax rate

8.2

11.02.1(74.1%)(80.7%)

0.8%

1.1%

0.2%

Sales

Gross profit

SG&A

original plan due to decreased sales andloss from write-off of inventories
Recognized bad debts of development fee
license, in addition to increased labor cost

Operating income

Non-operating income

Ordinary income

Income taxes
Profit attributable to ownerof parent

Loss not covered by deferred tax

4Sales by segment: Increase in ICT/Solution(Unit: 100 million yen)
FY2016
ActualFY2017
Plan(As of Aug. 31)

ActualYoYVS. Plan

984

1,000922(6.3%)(7.8%)

Semiconductors/Devices

584

520509(12.8%)(2.1%)

Communications

86

80

81(6.3%)+1.1%

Digital consumer
electronics

80

60

58(27.5%)

Vehicle installations

272525(7.5%)

PCs and peripherals

199

200

187

(5.8%)

Industrial and others

192

155

158

(17.6%)

400

480

413

+3.3%

(13.9%)

100

120

94

(5.7%)(21.7%)

80

80

78

(3.2%)

125

155

139

+11.1%

95

125

103

+7.8%

By application

Sales

ICT/Solution

By product

PC/Server/Network
I/O equipment
Software
Embedded devices
and others

Comments

Slightly lower than the previous period due todiscontinuation of some products
Generally as planed, despite of lower sales in(3.6%)
products for game machines and TVs
No significant change from the previous+0.9%
period or the original plan
Decreased in products for both PCs and(6.5%)
peripherals such as printers
Significantly lower than the previous period+2.1%
mainly due to transfer of the distribution rights

Below the plan, since businesses associatedwith IoT were no going well as expected
Generally as planned, mainly in the printer(2.7%)
businessHigher than the previous period, thanks to(10.6%) strong sales in products for PCs, but lower
than the plan which was ambitious
Growing sales in graphic products, but(17.9%)
missed the plan5

B/S & C/F: Changes since the end of the previous period
 B/S

 C/F
(Unit: 100 million yen)

(Unit: 100 million yen)

Cash anddeposits

195

96
35

As ofJan. 31, 2017

781

780

140

97
41

193

Accounts payable
Other liabilities+30.7

Operating CF259
293
649
Other current
assets10625Noncurrent
assets160

Investing CF(72.4)

Financing CF(12.2)

Effect of exchange
rate changes(0.6)

Net assets

Jan. 31, 2017

Liabilities andnet assets

Assets248

Liabilities andnet assets

Inventory

109 644
25Assets

Accounts
receivable

As ofJan. 31, 2018

139

Jan. 31, 2018(*) The discrepancy in cash and deposits between B/S and C/F is due to different criteria on fixed deposits.

6

FY2018 Business plan7

Gross profit rate is increasing after temporary negative factors eliminated

The medium-term business plan previously
announced will be revised based on the FY2018 planSales(Unit: 100 million yen)
VS. MT plan

FY2017
TotalH1

FY2018
H2
Total

YoY

(Actual)(Plan)(Plan)(Plan)

922

470

460

930

1,100

+8＋0.8%(170)(15.5% )

75.9

42.5

43.0

85.5

99.0

+9.6

＋12.6%(13.5)(13.6% )

8.2%

9.0%

9.3%

9.2%

9.0%

73.4

37.5

38.0

75.5

73.0

+2.1

＋2.9%

+2.5

+3.4%

2.5

5.0

5.0

10.0

26.0

+7.5

＋297.7%(16.0)(61.5% )

0.3%

1.1%

1.1%

1.1%

2.4%

4.3

6.0

6.0

12.0

26.0

+7.7

＋177.5%(14.0)(53.8% )

0.5%

1.3%

1.3%

1.3%

2.4%

2.1

4.0

4.0

8.0

17.5

+5.9＋276.0%(9.5)(54.3% )

0.2%

0.9%

0.9%

0.9%

1.6%

1.2%

2.7%

Midium-term plan
(Announced onMar. 2017)

Diff%

Diff%

Gross profit
SG&A
Operating income

Ordinary income

Profit attributable toowners of parent
ROE

0.3%

8Semiconductors/Devices (sales by application)(Unit: 100 million yen)-900 million yen (-1.8%)
over the previous year

509

500

8180

Communications

70

Digital consumer
electronics

25

Vehicle installation

58
25

187

175

158

150

ActualPlan

FY2017FY2018 The transfer of distributorship willaffect all segments except digitalconsumer electronics
 Digital consumer electronics :Growth in products for TVs and gamemachines

PC and peripherals

 PC and peripherals :Significant decrease in products forperipherals (printers)
Industrials andothers

 Industrials and others :Recovery in businesses related toheavy electric(e.g. solar power, electric railway)

9

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

413
94

78

139

+1,700 million yen (+4.1%)
over the previous year

430
105

PC/Server/Network75

I/O equipment

135103115

ActualPlan

FY2017FY2018

SoftwareEnbedded devicesand others PC/Server/Network :Contribution to profits expected byincreasing orders for IoT projects andhighly-profitable solution business I/O equipment & Software :No significant change in forecast since
the previous period
 Embedded devices and others :Growth in graphic products for medical
use and AI/Deep Learning

10

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.
As our policy on return to shareholders, we will target 100% of the total return
ratio through stable dividend payment and buyback

Dividend per share

FY2018Interim (Q2)

Year-end

Total

Payoutratio(Forecast)

30 yen30 yen60 yen183.8%

Unknown(Forecast)-30 yen

60 yen691.0%-(Actual)

30 yen----(Actual)20 yen20 yen40 yen119.2%

150,000
sharesBuyback

FY2017FY201611

Our actions

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Provide customers with high value added
Customers
Services / Platforms
 Key solution(Through business and capital tie-ups)
 Application development
 Cloud services

ServicesEmbedding Modules / Boards
 System Network Value added services(e.g. maintenance)Intelligent

G/W

AI inference /learningpackage

Wi-Fi application

Product lineup Semiconductors/devices
 ICT
 Portfolio restructuring

CPU boards
Security
LoRa
Semiconductors(e.g. sensors)Services / W/SGPU boards
AI element technology
Embedded DBs

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Keep the basic policy and strategies
Basic policy

Contribute to customers’ higher value addedby creating new strengths through the IoT approach
Our goals

Now• Explore new markets/customers from an
IoT perspective• Expand semiconductors/ICT products by
first approaching to services/platforms• Our business in the IoT market is not
growing as expected, with a limited
contribution to the core businesses• Obtain key solutions driving growth infuture• Focus investments in R&D• The investments have been implemented
as planned, whereby we are expecting acontribution to revenues• We are considering further investments,
including large-scale ones such as M&AIII) Accelerate the global
strategy• Reinforce businesses led by overseasentities• We have set up a new office in India• A new business (company) has beenlaunched in Thailand• We have developed a new organization
which allows us to support throughout
domestic and overseas businessesIV) Strengthen the businessbase for sustainable growth• Foster global human resources• Develop IT environments to activate
marketing efforts• Promote diversity management• Comprehensive organizational reform• Business process reviewI) Expand the core businesses
through the IoT approach

Basic strategies

II) Strategically focus
investments on growingmarkets14I) Expand the core businesses through the IoT approach• Explore new markets/customers from an IoT perspective• Expand semiconductors/ICT products by first approaching to services/platforms

Although not reaching the original plan, IoT related businesses are growing<Changes in revenues of IoT related businesses>(Unit: 100 million yen)

120.0

94.5

86.3

74.4
50.1

Actual
FY2016

Plan

Actual
FY2017

Originalplan

Revisedplan

FY201815II) Strategically focus investments on growing markets• Obtain key solutions driving growth in future through tie-ups with partners• Focus investments in R&D<Capital / business tie-ups>• Uhuru

Developing and providing solutions to support customers in earlycommercializing PoC to IoT by utilizing the Uhuru’s IoT platform“enebular”• AferoDeveloping “quick”, “easy” and “safe” platforms for non IP devices
which will be growing in the future IoT market• ottaLaunched a new IoT service based on beacon technology toaddress the social issue of decrease in resources who watch
children and elderly people<Investments in solution development>• Expecting growing orders for the store IT portal (WOMS) which have been
widely used in drug stores and other shops by making it cloud-based• Initiating development efforts to shift the use from PoC to commercialization of
the Librium’s solution which allows sensing and visualizing environment data16III) Accelerate the global strategy
Shrinking due to transfer of commercial
rights and shift of production to areas
covered by usJapan• Develop an organization which allows
us to support customers throughout
Japan and other countries

Transferbusinesses• Enter new markets to reinforce ourcapabilities to support customers

Overseasbusinesses

Greater China

ASEAN

Expand self-sustainedbusinesses

Explore new business bythe initiatives of overseas
entities• Expand sales of local products to customers inJapan• Explore new local customs by Japaneseproducts• Launch a new business in a new sub-subsidiary

17IV) Strengthen the business base for sustainable growth
Sep/2015 Announced the medium-termbusiness plan (FY2016-FY2018)
 Contribute to customers’ higher value
added by creating new strengths
through the IoT approach

Mar/2017 Revised the targets in themedium-term business plan
 The gross margin rose (8.2%  8.7%) by IoTand ICT, but sales were weak due to a slump
in semiconductors and a delay in launching
IoT
 Accelerate the shift to the high value added
business model, rather than seeking large
scale, to improve profitability

Mar/2018 Re-revised the targets in themedium-term business plan
To announce a new medium-term business plan
(FY2019-FY2021)

 Significantly increase human resources dedicatedfor IoT to accelerate the shift to high value added
businesses

Invite some external management
 Sep: Launched management reform Mar: Implement comprehensive
organizational reform and businessprocess review
 Developing business strategies, including
restructuring of semiconductor business bystrengthening the portfolio, reinforcementof marketing efforts for IoT related
businesses, acquisition of strengths
through M&A reinforcement of passthrough domestic and overseas structure

Change of President

Apr. 26: Start new management (Plan)

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

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

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