ANNUAL REVIEW. Fiscal year ended January 31, Change, Challenge, Speed

Transcription

1 ANNUAL REVIEW Fiscal year ended January 31, Change, Challenge, Speed

2 ABOUT the Ryoyo Group Contents 01 About the Ryoyo Group 03 To Our Shareholders 04 President s Message 06 Board of Directors and Corporate Auditors / Corporate Governance 08 Corporate Social Responsibility 09 Financial Section 18 Corporate Data / Investor Information Ryoyo Electro Corporation was founded in 1961 as a semiconductor trading company. Since its founding, the Company has continued to expand the range of its operations in step with the electronics industry and grow its business centered on its core semiconductors and computer systems and peripherals businesses. In these two core businesses, we have established a robust product lineup featuring a wide range of promising products from both Japan and overseas, and developed close business relationships with a number of leading suppliers. At the same time, we are utilizing the expertise gained through these two businesses to create and develop new businesses. Looking forward to a future that is a number of years down the line, the Ryoyo Group has established the corporate vision of being a comprehensive solutionsbased service company that exceeds the boundaries of electronics. Acting in accordance with this vision, we will work to ensure the ongoing growth of our two core businesses while developing global sales systems for these businesses. In addition, we will continue to strengthen and improve the Company s management systems. By implementing initiatives to accomplish these and other aims, we will target improved corporate value into the future. CORPORATE PHILOSOPHY_ Creating Value in Tune with the Times The Ryoyo Group will provide high-value-added services that are based on the constantly changing operating environment and on a firm understanding of customer needs. MANAGEMENT PRINCIPLE_ Change, Challenge, Speed To improve its corporate value as a comprehensive solutions-based service company that provides optimal services and solutions derived from its core semiconductors and computer systems and peripherals businesses, the Ryoyo Group will change to respond to trends in the electronics industry and take on new challenges with the necessary speed. Caution on Forward-Looking Statements The contents of this annual review that are not historical facts represent projections based on expectations and plans for the future. These projections contain elements of risk and uncertainty. As a result, forward-looking statements made in this annual review may differ from actual results and performance. Sales by Product Semiconductors 51.0% Produced in Japan 11.6% Produced overseas 39.4% 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. 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 and its consolidated subsidiaries Ryoyo Semicon Corporation, Ryoyo Electro (Shanghai) Co., Ltd., Ryoyo Electro Hong Kong Ltd., and Ryoyo Electro Singapore Pte., Ltd. Computer Systems and Peripherals 39.0% Electronic Devices 10.0% 01

3 Leveraging the strengths of its two core businesses, the Ryoyo Group provides one-stop service for all of its customers intelligent systems needs High-Value- Added Services and Solutions Embedded solutions Design and development subcontracting services Special purpose solutions (Medical, logistics, energy saving, etc.) Semiconductors Demand creation Technical support Product procurement / sales Overseas production transference support EOL support RYOYO Our Value Computer Systems and Peripherals Consulting Technical support Product procurement / sales System integration Software development Operational / Maintenance support Solutions provision capabilities, technological capabilities, business foundation, quality management, global capacity, robust product lineup Solid Management Foundation Strong relationships with suppliers / Sound financial structure Effective CSR management 02

4 To Our Shareholders On April 1, 2013, Ryoyo Electro shifted to a new management system. We believe this will enable us to better address rapidly changing trends in the electronics industry, which the Company operates in, and more effectively respond to the currently harsh operating environment. As part of this change, Takayoshi Oouchi assumed the role of President and Chief Operating Officer (COO). Mr. Oouchi possesses a breadth of operational experience related to the industry and will leverage this experience to further strengthen our mainstay semiconductors and computer systems and peripherals businesses, while at the same time accelerating the development of new businesses that incorporate aspects of both of these businesses. In this manner, Mr. Oouchi will advance future growth strategies based on developing new businesses and raising the value of new and existing business. Meanwhile, former President Kenhachiro Ogawa will assume the position of Chairman and Chief Executive Officer (CEO). This new position will enable him to more efficiently direct all areas of management from a broader perspective. Under the leadership of this new, stronger senior management team, Ryoyo Electro will pursue increased corporate value going forward. April 2013 Kenhachiro Ogawa Chairman and Chief Executive Officer Takayoshi Oouchi President and Chief Operating Officer 03

5 President s Message Realizing Our Vision and Accomplishing Management Goals Performance and Operating Environment During the year under review, the fiscal year ended January 31, 2013, the Japanese economy continued to see low levels of final demand as a result of persisting deflation. This was compounded by the impacts of ongoing financial crises in Europe as well as the economic slowdown in China. These factors made the year under review exceptionally harsh for the manufacturing industry among others. In the electronics industry, which the Ryoyo Group operates in, industry adjustment trends focused on industrial and consumer products presented a difficult environment for semiconductors. However, interest in cloud computing and security systems remained high, and market conditions for computer-related products were favorable as a result. In this environment, we strove to boost sales of our mainstay semiconductors, computer systems and peripherals, and network-related products. At the same time, we endeavored to develop new high-value-added services and solutions targeting increased revenue in the medium to long term. As a result of these efforts, net sales increased 2.4% year on year, to 87.2 billion. Operating income, however, decreased 47.4%, to 0.7 billion, and ordinary income was down 42.7%, to 0.9 billion. Accordingly, net income fell 51.8%, to 0.4 billion. Initiatives to Accomplish Management Goals In its management principle, the Ryoyo Group has defined its vision of being a comprehensive solutions-based service company that provides optimal services and solutions. In order to realize this vision, we are working to quickly expand sales and improve profit rates as well as reinforce and improve the management culture supporting our business base. Through these efforts, we aim to accomplish our medium-term management goal of achieving an operating margin of over 3% and operating income of over 3.0 billion. In working to expand sales and improve profit ratios, we will strengthen the Group s mainstay semiconductors and computer systems and peripherals businesses as well as businesses derived from these businesses and those created by incorporating elements from both businesses. While strengthening these businesses, we will also endeavor to set them on a track of continued growth over the medium to long term. Semiconductors Reinforce demand creation Enhance new high-value-added products Reinforce supporting capabilities which are high-value-added technologies Expand business initiated by overseas subsidiaries Computer Systems and Peripherals Accelerate solutions proposal Enhance service menus Enhance enterprise business Reinforce alliance with suppliers / partners Integrated / Derivative Business With intelligent systems as a keyword, consolidate products / know-how in the preceding segments to expand the scope of business Enhance contribution by new businesses (service solutions) to sales Expanded Sales and Improved Profit Ratios 04

6 At the same time, we will advance a number of initiatives geared toward reinforcing and improving the management culture supporting our business base. These will include innovating our IT systems and workflow processes, optimizing personnel and organization distribution, promoting voluntary human resources development programs, and effectively utilizing funds to drive future growth. Outlook for the Fiscal Year Ending January 31, 2014 The electronics industry is currently faced with difficult conditions, particularly with regard to industrial and consumer semiconductor-related products. However, it is expected that the depreciation of the Japanese yen that began at the end of 2012 will relieve pressures and result in a gradual improvement in operating conditions. At the same time, IT investment among companies should remain strong in the presence of the tailwind created by the spread of cloud computing and security systems as well as intelligent systems. Considering the operating environment, our current forecasts for performance in the fiscal year ending January 31, 2014, are as follows. Fiscal years ended / ending January Millions of yen % (Forecast) Change Net sales 87,183 90, Operating income 722 1, Net income Shareholder Returns At Ryoyo Electro, we view returning profits to shareholders as one of our most important management tasks. Accordingly, we issue cash dividend payments in consideration of the Company s financial position and the operating environment, but are also sure to retain internal revenues to an extent that will allow us to sufficiently maintain a stable operating foundation and further expand our business. At this point in time, we intend to keep cash dividend payments at the current level of 30 per share for the foreseeable future. However, we will reevaluate this policy based on future mediumterm income levels. For the year under review, the Company paid 15 per share of common stock for the year-end cash dividend, making for an annual cash dividend of 30 per share of common stock when combined with the interim dividend. Likewise, in the fiscal year ending January 31, 2014, we plan to pay 15 per share of common stock for both the interim and year-end cash dividends, again, making for an annual cash dividend of 30 per share of common stock. In closing, I would like to thank our shareholders for their ongoing support and ask for their continued support and understanding. Takayoshi Oouchi President and Chief Operating Officer 05

7 Board of Directors and Corporate Auditors / Corporate Governance Board of Directors and Corporate Auditors As of April 25, 201 Profile of Takayoshi Oouchi Kenhachiro Ogawa Chairman and CEO Takayoshi Oouchi President and COO June 21, 1956 Born in Miyagi Prefecture Apr Joined Ryoyo Electronics Corporation (currently Ryoyo Electro Corporation) Sales representative for electronic equipment and electronic devices using semiconductors Aug General Manager, Sales Dept., Computer System Products Sales Div. II Aug General Manager, Computer System Products Sales Div. II Feb Executive and General Manager, Computer System Products Sales Div. II Aug Executive General Manager and Deputy General Manager, Corporate Strategy Office Apr July 2011 Apr Nov Dec Apr Director in charge of computer system sales, semiconductor and computer systems and peripherals technologies, and market development project (currently New Business Div.) Director and Deputy General Manager, Embedded Div. (currently IS Div.) Director and General Manager, Eastern Japan Block Managing Director, General Manager, Eastern Japan Block, and Deputy General Manager, IS Div. Managing Director in charge of sales and technologies President and COO (incumbent) Profile of Yoshiharu Hayakawa Aug Registered as Certified Public Accountant Apr Representative Director, Chuo Coopers and Lybrand Consulting Co., Ltd. Jan Representative, Chuo Audit Corporation Nov Representative, Kasumi Empowerment Research Institute (incumbent) June 2007 Outside Director, Mitsui Fudosan Co., Ltd. (incumbent) June 2012 External Director, Kakaku.com, Inc. (incumbent) Yutaka Horikiri Senior Managing Director Nobuo Kikutsugi Managing Director Masakazu Shinohara Director Yoshiharu Hayakawa Outside Director (Independent Director) Reason for appointment The Company intends to utilize his expert knowledge as a Certified Public Accountant, as well as his extensive experience and broad insight as a management consultant, to help strengthen the corporate governance of the Company. Standing Statutory Auditor Akio Tanaka Statutory Auditors Katsumasa Yasui Ryoji Kimura Tsutomu Nobechi Executive General Managers Kazuhiko Yokoyama Masaaki Tanabe Kenjiro Kobayashi Kiyoshi Waki Haruo Nakayama Tadao Koizumi Satoru Fukumoto Fumiaki Takeno Corporate Governance Amidst the progressing trend of economic globalization, the electronics industry has undergone relentless technological innovation and industry reorganization. These industry changes, seen on a global scale, have fueled the intensification of competition, forcing distributors that focus on semiconductor sales to fight for their continued survival. Thrust into this heated competition, the Ryoyo Group, whose operations are centered on the two areas of semiconductors and computer systems and peripherals, has continued to develop high-value-added businesses that integrate technology with marketing. Further, we are accelerating the creation of new services and solutions that arise from the two focus areas of our operations. We also realize that strengthening overseas businesses is an essential task to be undertaken. To this extent, we are reinforcing our overseas network and expanding the range of businesses we conduct overseas through coordination with other companies. Aiming to advance these initiatives in a speedy manner, we have increased the number of executive general managers to eight. These managers support the Company s directors; thus, the increase in their numbers will subsequently raise the Company s on-site management capabilities. Going forward, we will continue to follow Ryoyo Electro s corporate philosophy of creating value in tune with the times, which we have adhered to since the days of our founding, while boasting Change, Challenge, Speed as our management principle. These slogans will empower us as we continue to target higher levels of corporate value. Basic Corporate Governance Philosophy At Ryoyo Electro, we recognize enhancing corporate governance as an important task of management. Therefore, in order 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 functionality of corporate governance. 06

8 Company Organizations Directors and Board of Directors The Board of Directors, which consists of six directors (as of April 25, 2013), is responsible for making decisions as stipulated in laws, regulations, and the articles of incorporation; making important management decisions; and overseeing the execution of operations. In principle, the Board of Directors meets once a month, and met a total of 11 times during the year under review. Corporate Auditors and Board of Auditors Ryoyo Electro employs a corporate auditor governance model, whereby corporate auditors act independently of directors and oversee directors execution of operations. The Board of Auditors consists of four corporate auditors (as of April 25, 2013), of which three are external corporate auditors. In principle, the Board of Auditors meets once a month, and met a total of 15 times during the year under review. Internal Control and Risk Management Systems The following are our basic principles for establishing internal control systems. These principles help us maintain systems for sound internal control. Basic Principles 1. System for ensuring that the execution of duties by directors and employees 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 4. System for ensuring the efficient execution of duties by directors 5. System for ensuring the appropriateness of operations undertaken by the corporate group consisting of Ryoyo Electro Corporation and its subsidiaries 6. System concerning employees requested by the Board of Auditors to serve as assistants and items concerning the independence of these employees from directors 7. System concerning reports submitted by directors and employees to the Board of Auditors and other systems concerning reports to the Board of Auditors 8. Other systems for ensuring effective auditing by the Board of Auditors Risk Management Systems Risks that may affect our operations include those related to compliance, the environment, disasters, information security, product quality, foreign exchange rates, and financial reporting. Each department maintains effective risk management systems managed by employees who are responsible for risk management. In the event that any disruption occurs, these employees will guide their department in responding quickly and effectively to those disruptions in order to reduce the impact on operations. Investor Relations Activities Ryoyo Electro recognizes that disclosing accurate, unbiased, and timely information about the management of the Company to our shareholders and other investors is an important function of management. In correspondence with the release of second quarter and annual financial reviews, we also offer information about the current business situation and future direction of the Company through our website* as well as at information sessions held for analysts and investors. Through these efforts, we will continue to disclose unbiased information in a timely manner. * Appointment / Dismissal Appointment / Dismissal General Shareholders Meeting Appointment / Dismissal Board of Auditors Audits Board of Directors Auditing Firm Cooperation Financial audits Internal Auditing Department Instructions Reports CEO / COO Appointment / Dismissal Directors in Charge of Operations, Executive General Managers Management Committee External Legal Advisor Advice / Instruction Internal audits Operational Execution Organization 07

9 Corporate Social Responsibility Basic CSR Philosophy In accordance with our corporate philosophy of creating value in tune with the times, the Ryoyo Group conducts its business with high ethical standards for the greater good of society. In order to fulfill our responsibilities toward society in every aspect of our business, we will continue to act in compliance with this philosophy, as well as with all laws and regulations, throughout our domestic and overseas operations. Systems to Promote Compliance In 2007, we established the Ryoyo Group Codes of Conduct, which we expect directors and employees within all Ryoyo Group companies, whether domestic or overseas, to follow. It also describes matters that should be observed from a compliance perspective and serves as a foundation for our operations moving forward. We have also set up the Ryoyo Group Compliance Hotline so that we can quickly identify violations of the Ryoyo Group Codes of Conduct and carry out the necessary steps to rectify such issues. This hotline serves as a communication channel for employees to discuss and report compliance-related concerns. Strengthening Information Security Measures Amid the increasing demand from society for companies to strengthen their information security measures and in consideration of the fact that we handle highly confidential information, including information on products under development by customers as well as programs to be incorporated into semiconductors we have obtained certification for all domestic Group companies (excluding satellite offices) under ISO 27001, the international standard for helping organizations establish and maintain an information security management system. We also plan to continue to raise awareness among all employees of the importance of secure information management. This will help to further enhance the trust placed in us by our customers, our business partners, and society as a whole. Implementing Environmental Protection and Quality Control Initiatives All domestic Ryoyo Group companies (excluding satellite offices) have acquired ISO certification, the international standard for environmental management, and ISO 9001 certification, the international standard for quality management, including quality assurance. The Group effectively employs an integrated management system that functions as both an environmental management system and a quality management system. This system allows us to contribute to the preservation of the environment by reducing the environmental impact and the environmental risks of our operations while continuing to improve the quality of our products, which in turn allows us to not only meet the needs of our customers but to also contribute to society. Implementing Green Procurement Initiatives Dedicated to green procurement, Ryoyo Electro has established two sets of guidelines the Green Procurement Guidelines and the Management Standards on Chemical Substances and requests that all suppliers and outsourcers adhere to these guidelines. Both of these can be viewed on our website. In selecting business partners, we assess them on the basis of their compatibility with the Green Procurement Guidelines. In this way, we are actively promoting green procurement throughout the supply chain. Additionally, we are working to reduce the environmental impact of the products and secondary supplies that we use by examining their compatibility with the Management Standards on Chemical Substances from the procurement stage. We will continue to promote environmental consideration in our operations and strive to be an increasingly environmentfriendly corporation. Addressing Conflict Mineral Issues There have recently been problems with gold, tantalum, tungsten, tin, and other so-called conflict minerals excavated in the Democratic Republic of the Congo and neighboring countries being used to fund armed groups in that area. In addition, there have been issues regarding human rights violations occurring during the excavation of these minerals. In 2010, the United States established the Dodd Frank Act with the aim of abolishing the use of conflict minerals. This Act requires companies listed on U.S. stock exchanges to disclose information regarding their use of conflict minerals. While this Act does not apply to the Company, Ryoyo Electro is supportive of the Act s goal of protecting human rights. Accordingly, the Company is supporting this Act through activities in two different areas. First of all, we are addressing this issue throughout the supply chain by encouraging suppliers to refrain from using conflict minerals. Secondly, we are responding to conflict mineral inspections of products delivered to companies to which the Dodd Frank Act applies. 08

10 FINANCIAL SECTION Consolidated Financial Highlights Ryoyo Electro Corporation For the years ended January 31, 2013, 2012, 2011, 2010, and 2009 Millions of yen Thousands of U.S. dollars* For the Year Net sales 87,183 85,108 94,353 81, ,521 $956,593 Gross profit 7,373 7,932 8,158 6,936 8,856 80,901 Selling, general and administrative expenses 6,651 6,559 6,790 6,918 7,920 72,977 Operating income 722 1,372 1, ,924 Net income (loss) , (365) 4,649 Free cash flows 328 3,359 (8,145) 3,714 7,707 3,605 At Year-End Total assets 72,490 70,602 72,857 76,749 75,792 $795,370 Total net assets 61,303 61,155 62,227 62,922 63, ,632 Per Share of Common Stock (Yen / U.S. dollars) Net income (loss) (13.21) $ 0.18 Total net assets 2, , , , , Cash dividends Ratios (%) Gross profit margin Operating margin Net income (loss) margin (0.3) Equity ratio Return on equity (0.6) Other Information Number of shares issued ** 25,826,926 25,827,768 26,718,436 27,673,480 27,674,355 Number of employees * U.S. dollar amounts have been translated from yen, for convenience only, at the rate of 91.14=U.S.$1.00, the exchange rate prevailing on January 31, ** 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 Gross Profit / Gross Profit Margin Operating Income / Operating Margin Millions of yen 112,521 81,381 94,353 85,108 87,183 Millions of yen / % 8,856 6,936 8,158 7,932 7,373 Millions of yen / % 935 1,368 1, Gross Profit Gross Profit Margin Operating Income Operating Margin 09

11 Consolidated Financial Review Management Environment During the year under review, the fiscal year ended January 31, 2013, the Japanese economy continued to see low levels of final demand as a result of persisting deflation. This was compounded by the impacts of the ongoing recession in Europe, which is a result of the sovereign debt crisis, and economic slowdown in China, making the year under review exceptionally harsh for the manufacturing industry among others. In the electronics industry, which the Ryoyo Group operates in, low demand and reduced selling prices for digital consumer electronics and other products used by consumers resulted in a recession that struck the very structure of the industry. At the same time, production adjustments for industrial equipment continued as a result of ongoing capital investment curtailment by companies. Accordingly, conditions were harsh for semiconductor-related products. Performance of computer systems and peripherals products, meanwhile, was strong. This was due to continuing interest in cloud computing, security, and business continuity plan systems, which offset the growth plateau seen for capital investment in IT equipment. 51.8%, to 0.4 billion. Likewise, net income per share of common stock fell 50.3%, to Semiconductors In the year under review, sales of products for PCs and vehicle installations posted notable growth, but this growth was unable to compensate for the declines in sales of products for communications systems and industrial applications. Net sales of semiconductors decreased 0.5 billion year on year, or 1.0%, to 44.4 billion. In the fiscal year ending January 31, 2014, we are projecting declines in sales of products for communications systems following the reduction of planned production volumes by certain customers. However, we anticipate that these declines will be offset by the recovery of sales for products for factory automation systems, heavy electrical machinery, and other industrial applications. This recovery is expected to begin midway through the year, and is forecast to drive net sales of semiconductors up 2.4%, to 45.5 billion. Sales by Applications Billions of yen Results for the Fiscal Year Ended January 31, 2013 In this environment, the Ryoyo Group worked to ensure that a stable supply of its products was available while also striving to boost sales of its products including its mainstay semiconductors, computer systems and peripherals, and network-related products. We also endeavored to develop new high-value-added services and solutions targeting increased revenue in the medium to long term. As a result of these efforts, net sales increased 2.4% year on year, to 87.2 billion. Operating income, however, decreased 47.4%, to 0.7 billion, largely due to a decline in the gross profit margin following lower sales of high-margin products. Accordingly, net income fell Communications Vehicle installations Industrial and others 30.9% 7.6% +43.1% +28.5% 16.0% % 1.6% +4.5% +1.8% +13.8% Digital consumer electronics and other home electronics PCs and peripherals Forecast Net Income (Loss) / Return on Equity Total Assets / Total Net Assets Free Cash Flows Millions of yen / % Millions of yen Millions of yen 1,112 75,792 76,749 72,857 70,602 72,490 7, ,137 62,922 62,227 61,155 61,303 3,714 3, (0.6) (365) (8,145) 11.1 Net Income (Loss) Return on Equity Total Assets Total Net Assets 10

12 FINANCIAL SECTION Computer Systems and Peripherals In the year under review, orders for systems to meet customers IT investment plans continued to increase, and sales of software for PCs held firm. As a result, net sales of computer systems and peripherals rose 1.9 billion year on year, or 5.8%, to 34.0 billion. In the fiscal year ending January 31, 2014, we will work to increase orders for servers and other system solutions while also strengthening businesses targeting enterprises. Through these efforts, we forecast that net sales of computer systems and peripherals will increase 5.8%, to 36.0 billion. supplies, while promoting sales of such products. Regardless, net sales are expected to decline 2.6%, to 8.5 billion. Sales of Electronic Devices Billions of yen % % 8.5 Sales by Products Billions of yen Forecast % 6.3% +13.4% % 3.4% +1.7% Forecast Sales by Region Japan In the year under review, sales to external customers in Japan increased 0.4 billion year on year, or 0.6%, to 72.8 billion, following growth in sales of micro processing units (MPUs). However, operating income decreased 0.4 billion, or 32.0%, to 0.8 billion, as a result of a rise in the ratio of low-profitability orders. PCs / Servers / LANs I/O equipments Software / Embedded Electronic Devices In the year under review, sales of LCD modules for tablets increased, and net sales of electronic devices rose 0.7 billion year on year, or 8.3%, to 8.7 billion, as a result. In the fiscal year ending January 31, 2014, orders for tablet products will come to an end. During this year, we will work to develop new lineups of products made in China, such as LCDs and power Asia Sales of LCD modules for tablets grew, and sales to external customers in Asia increased 1.6 billion year on year, or 12.8%, to 14.4 billion, accordingly. However, operations in Asia recorded an operating loss of 38.0 million. The figure for operating income recorded on the Consolidated Statements of Income includes operating income from each segment as well as from intersegment transactions. Cash Dividends per Share Yen Selling, General and Administrative Expenses / Number of Employees Millions of yen / People , ,918 6,790 6,559 6, Selling, General and Administrative Expenses Number of Employees 11

13 Cash Flows Cash and cash equivalents totaled 13.2 billion at the fiscal year-end, a 0.1 billion year-on-year decrease. Major factors included purchase of investment securities and cash dividends paid. Net cash provided by operating activities in the year under review was 0.8 billion, compared to 5.3 billion recorded in the previous fiscal year. This was primarily due to recording income before income taxes of 0.9 billion. Net cash used in investing activities was 0.5 billion, compared to 2.0 billion recorded in the previous fiscal year. Major outflows included purchase of investment securities of 7.1 billion. Net cash used in financing activities was 0.8 billion, compared to 1.6 billion recorded in the previous fiscal year. Major outflows included cash dividends paid. Financial Position Total assets at the end of the fiscal year were 72.5 billion, 1.9 billion higher than at the previous fiscal year-end. This was primarily due to an increase in notes and accounts receivable trade. Total liabilities increased 1.7 billion, to 11.2 billion, mainly due to an increase in notes and accounts payable trade. Total net assets increased 0.1 billion, to 61.3 billion. This was largely due to a rise in foreign currency translation adjustment. Return on equity worsened 0.7 percentage point, to 0.7%, and the equity ratio declined 2.1 percentage points, to 84.5%. Returning Profits to Shareholders Shareholder Returns Policy The Company views returning profits to its shareholders as one of its most important management tasks. Accordingly, we issue cash dividend payments in consideration of 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. Our policy at the moment is to maintain the current level of cash dividend payments of 30 per share for the foreseeable future. However, we will reevaluate this policy based on future medium-term income levels. Further, the Company has defined in its articles of incorporation that, in accordance with article 454 (5) of the Companies Act of Japan, interim dividends may be issued each year with a cutoff date of July 31 following approval by the Board of Directors. The Company therefore practices the policy of issuing cash dividend payments from returned earnings twice per fiscal year, in the form of an interim dividend (issued at the end of the second quarter) and a year-end dividend. The year-end dividend is decided at the general shareholders meeting, while the interim dividend is decided by the Board of Directors. Dividend Payments in the Fiscal Year Ended January 31, 2013, and the Fiscal Year Ending January 31, 2014 In accordance with the policy described above, for the year under review the Company will pay 15 per share of common stock for the year-end cash dividend, making for an annual cash dividend of 30 per share of common stock when combined with the interim dividend. Likewise, in the fiscal year ending January 31, 2014, the Company intends to pay 15 per share of common stock for both the interim and year-end cash dividends, for an annual cash dividend of 30 per share of common stock. Risks Pertaining to the Company s Business Risks that may affect the business performance, stock price, and financial condition of the Company include, however are not limited to, the following. More information pertaining to business risks can be found on the Company s website. (1) Abrupt changes in economic conditions (2) Fall in the price of products (3) Contracts with suppliers (4) Fluctuation in foreign exchange rates (5) Customers moving operations overseas (6) Country-based risks (7) Product defects and delivery issues and problems related to services (8) Natural disasters and other Acts of God (9) Collection of accounts receivable (10) Retirement benefit obligations (11) Impairment losses on write-down of investment securities 12

14 FINANCIAL SECTION Consolidated Balance Sheets Ryoyo Electro Corporation At January 31, 2013 and 2012 Millions of yen Thousands of U.S. dollars Assets Current Assets Cash and deposits 13,226 13,337 $145,121 Notes and accounts receivable trade 23,295 21, ,600 Short-term investment securities 10,999 10, ,689 Merchandise and finished goods 11,348 11, ,516 Deferred tax assets ,312 Other ,400 Allowance for doubtful accounts (20) (19) (229) Total current assets 59,551 58, ,411 Noncurrent assets Property, plant and equipment Tools, furniture and fixtures, net ,314 Land Other, net ,534 Total property, plant and equipment ,912 Intangible assets ,608 Investments and other assets Investment securities 10,884 10, ,422 Deferred tax assets 85 Other 1,188 1,262 13,045 Allowance for doubtful accounts (2) (2) (29) Total investments and other assets 12,070 11, ,438 Total noncurrent assets 12,938 12, ,959 Total assets 72,490 70,602 $795,370 13

15 Millions of yen Thousands of U.S. dollars Liabilities Current liabilities Notes and accounts payable trade 8,937 7,275 $ 98,058 Income taxes payable ,977 Accrued consumption taxes Provision for bonuses ,214 Other ,925 Total current liabilities 10,153 8, ,408 Noncurrent liabilities Provision for retirement benefits ,760 Deferred tax liabilities Other ,053 Total noncurrent liabilities 1,032 1,006 11,329 Total liabilities 11,186 9, ,737 Net assets Shareholders equity Capital stock 13,672 13, ,010 Capital surplus 13,336 13, ,329 Retained earnings 37,987 39, ,802 Treasury stock (3,295) (4,402) (36,155) Total shareholders equity 61,700 62, ,987 Accumulated other comprehensive income Valuation difference on available-for-sale securities ,647 Deferred gains or losses on hedges 0 (0) 2 Foreign currency translation adjustment (962) (1,203) (10,561) Total accumulated other comprehensive income (447) (896) (4,912) Subscription rights to shares Total net assets 61,303 61, ,632 Total liabilities and net assets 72,490 70,602 $795,370 14

16 FINANCIAL SECTION Consolidated Statements of Income and Consolidated Comprehensive Statements of Income Ryoyo Electro Corporation For the years ended January 31, 2013 and 2012 Millions of yen Thousands of U.S. dollars Consolidated Statements of Income Net sales 87,183 85,108 $ 956,593 Cost of sales 79,810 77, ,691 Gross profit 7,373 7,932 80,901 Selling, general and administrative expenses Provision of allowance for doubtful accounts 0 9 Salaries and bonuses 2,745 2,695 30,122 Provision for bonuses ,214 Retirement benefit expenses ,020 Rent expenses ,488 Depreciation ,892 Other 3,028 2,939 33,228 Total selling, general and administrative expenses 6,651 6,559 72,977 Operating income 722 1,372 7,924 Non-operating income Interest income ,659 Dividends income Purchase discounts Other Total non-operating income ,006 Non-operating expenses Sales discounts Foreign exchange losses Loss on abandonment of noncurrent assets Other Total non-operating expenses Ordinary income 909 1,588 9,982 Extraordinary income Reversal of allowance for doubtful accounts 104 Gain on bad debts recovered 12 Total extraordinary income 117 Extraordinary loss Bad debts written off 143 Loss on valuation of investment securities 21 Legal expenses 8 Total extraordinary loss 173 Income before income taxes and minority interests 909 1,531 9,982 Income taxes current ,217 Income taxes deferred Total income taxes ,332 Income before minority interests ,649 Net income $ 4,649 Consolidated Comprehensive Statements of Income Income before minority interests $ 4,649 Other comprehensive income Valuation difference on available-for-sale securities 206 (301) 2,270 Deferred gains or losses on hedges 1 (0) 11 Foreign currency translation adjustment 240 (83) 2,644 Total other comprehensive income 448 (385) 4,925 Comprehensive income ,575 (Details) Comprehensive income attributable to owners of the parent ,575 Comprehensive income attributable to minority interests 15

17 Consolidated Statements of Changes in Net Assets Ryoyo Electro Corporation For the years ended January 31, 2013 and 2012 Shareholders equity Millions of yen Accumulated other comprehensive income From February 1, 2012 to January 31, 2013 Capital stock Capital surplus Retained earnings Treasury stock Total shareholders equity Valuation difference on available-forsale securities Deferred gains or losses on hedges Foreign currency translation adjustment Subscription rights to shares Balance at January 31, ,672 13,336 39,446 (4,402) 62, (0) (1,203) N et increase (decrease) during the fiscal year Cash dividends (774) (774) Net income for the fiscal year Purchase of treasury stock (0) (0) Retirement of treasury stock (1,108) 1,108 N et increase (decrease) other than shareholders equity T otal increase (decrease) during the fiscal year (1,459) 1,107 (351) Balance at January 31, ,672 13,336 37,987 (3,295) 61, (962) 50 Shareholders equity Millions of yen Accumulated other comprehensive income From February 1, 2011 to January 31, 2012 Capital stock Capital surplus Retained earnings Treasury stock Total shareholders equity Valuation difference on available-forsale securities Deferred gains or losses on hedges Foreign currency translation adjustment Balance at January 31, ,672 13,336 42,052 (6,322) 62, (0) (1,120) N et increase (decrease) during the fiscal year Cash dividends (801) (801) Net income for the fiscal year Purchase of treasury stock (763) (763) Disposal of treasury stock (0) 0 0 Retirement of treasury stock (2,683) 2,683 N et increase (decrease) other than shareholders equity (301) (0) (83) T otal increase (decrease) during the fiscal year (2,606) 1,919 (686) (301) (0) (83) Balance at January 31, ,672 13,336 39,446 (4,402) 62, (0) (1,203) Thousands of U.S. dollars Shareholders equity Accumulated other comprehensive income From February 1, 2012 to January 31, 2013 Capital stock Capital surplus Retained earnings Treasury stock Total shareholders equity Valuation difference on available-forsale securities Deferred gains or losses on hedges Foreign currency translation adjustment Subscription rights to shares Balance at January 31, 2012 $150,010 $146,329 $432,815 $(48,308) $680,847 $3,376 $(8) $(13,205) $ N et increase (decrease) during the fiscal year Cash dividends (8,501) (8,501) Net income for the fiscal year 4,649 4,649 Purchase of treasury stock (7) (7) Retirement of treasury stock (12,161) 12,161 N et increase (decrease) other than shareholders equity 2, , T otal increase (decrease) during the fiscal year (16,013) 12,153 (3,859) 2, , Balance at January 31, 2013 $150,010 $146,329 $416,802 $(36,155) $676,987 $5,647 $ 2 $(10,561) $556 16

18 FINANCIAL SECTION Consolidated Statements of Cash Flows Ryoyo Electro Corporation For the years ended January 31, 2013 and 2012 Millions of yen Thousands of U.S. dollars I. Cash flows from operating activities Income before income taxes 909 1,531 $ 9,982 Depreciation and amortization ,931 Loss on sales and retirement of noncurrent assets Foreign exchange losses (gains) (44) 19 (488) Increase (decrease) in provision 20 (183) 221 Interest and dividends income (229) (174) (2,513) Loss on valuation of investment securities 21 Decrease (increase) in notes and accounts receivable trade (1,201) 5,028 (13,177) Decrease (increase) in inventories 99 (267) 1,087 Decrease (increase) in notes and accounts payable trade 1,062 (1,096) 11,662 Increase (decrease) in accrued consumption taxes (87) 108 (963) Other, net ,641 Subtotal 1,318 5,506 14,463 Interest and dividends income received ,421 Income taxes refunded (paid) (712) (353) (7,815) Net cash provided by operating activities 826 5,334 9,069 II. Cash flows from investing activities Payments into time deposits (7,000) (76,804) Proceeds from withdrawal of time deposits 7,000 76,804 Purchase of short-term investment securities (2,000) (21,944) Proceeds from redemption of securities 9,000 9,000 98,749 Purchase of property, plant and equipment and intangible assets (469) (323) (5,150) Proceeds from sales of property, plant and equipment and intangible assets Purchase of investment securities (7,104) (10,636) (77,952) Other, net 72 (14) 790 Net cash used in investing activities (498) (1,974) (5,464) III. Cash flows from financing activities Cash dividends paid (774) (799) (8,492) Purchase of treasury stock (0) (763) (7) Other, net (2) (1) (31) Net cash used in financing activities (777) (1,564) (8,531) IV. Effect of exchange rate changes on cash and cash equivalents 338 (105) 3,711 V. Net increase (decrease) in cash and cash equivalents (110) 1,689 (1,214) VI. Cash and cash equivalents at the beginning of the period 13,336 11, ,332 VII. Cash and cash equivalents at the end of the period 13,226 13,336 $145,117 17

19 Corporate Data / Investor Information As of January 31, 2013 Corporate Name Ryoyo Electro Corporation Address Konwa Building, Tsukiji, Chuo-ku, Tokyo , Japan Phone Composition of Shareholders Individuals and other 29.5% Foreign corporations and other foreign investors 28.0% Other corporations 18.3% Financial institutions 13.3% Treasury stock 10.3% Securities companies, etc. 0.6% Fax Website Date of Incorporation February 27, 1961 Paid-in Capital 13,672 million Authorized Shares 119,628,800 Shares Issued 28,800,000 Major Shareholders Thousands of shares % Mitsubishi Electric Corporation 2, SHC Corporation 2, CBNY Fidelity Small Cap Value Fund 1, State Street Bank and Trust Company 1, CBNY DFA INTL SMALL CAP VALUE PORTFOLIO The Master Trust Bank of Japan (Retail trust account) Japan Trustee Services Bank, Ltd. (Trust account) Sheep Shokai Co The Master Trust Bank of Japan (Trust account) Nippon Life Insurance Company Notes: 1. Ryoyo Electro Corporation possesses 2,973,074 shares of treasury stock, which represents a 10.32% holding in the Company. 2. Calculations for the ownership percentages above did not account for treasury stock. 3. Ryoyo Electro Corporation canceled 1,000,000 shares of the abovementioned treasury stock on March 2, Shareholders 7,698 Stock Price Chart Stock Trading Unit 100 shares Stock Price Yen 1,200 Nikkei Stock Average Yen 12,000 Stock Listing Tokyo Stock Exchange, First Section Ticker Code 8068 Transfer Agent Mitsubishi UFJ Trust and Banking Corporation Trading Volume Thousands of shares 3,000 2,000 9,000 6,000 1,

20 EMS / ISO FS / ISO 9001 IS / ISO Ryoyo Electro has acquired the following certification at all offices in Japan (excluding the satellite office). ISO (Environmental management systems) ISO 9001 (Quality management systems) ISO (Information security management systems) 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